Extreme climate risk and rural household consumption

We study the impact of the extreme climate risk (ECR) on rural household consumption (RHC). Based the China Family Panel Studies (CFPS) and meteorological data from 2010 to 2020, we find that ECR significantly reduces total RHC. It is worth noting that the negative impacts of extreme low temperatures and extreme high temperatures on RHC are more significant than the impacts of extreme rainfall and extreme drought on RHC. We also find that ECR increases the risk of income uncertainty, liquidity constraints, and future risk expectations of rural households to change their consumption decisions. We provide new evidence for the permanent income hypothesis and the precautionary savings theory.