Climate change and regional inequality: The effect of high teperatures on fiscal stress

We examine the effect of climate change on regional inequality using detailed data on meteorological factors and local fiscal stress. We find that climate change-induced high temperatures can lead to higher local fiscal stress, which further contributes to regional inequality in multiple ways. We also observe nonlinear effects of high temperatures on fiscal stress. Only when daily mean temperature is above 32 °C will it induce fiscal stress in a significant way. Additional tests reveal that fiscal stress is more sensitive to high temperatures in hot regions, eastern China, regions with higher population density, developed regions, as well as counties with worse fiscal performance. This paper contributes to a more comprehensive understanding of the impacts of climate change, and is beneficial for estimating the adverse impacts of climate change more accurately. • Climate change leads to regional inequality through inducing local fiscal stress. • The causality between climate change and fiscal stress is nonlinear. • Hot regions, eastern China, and regions with higher population density are particularly susceptible to climate change.