Climate change has fiscal implications via a reduction in the tax base if output declines and via the need for increased expenditure on adaptation and social insurance.
Recent research in India has shown that in the absence of climate control, worker productivity declines on hot days. Workplace adaptation, e.g., climate control, is alone insufficient to mitigate the effect of heat on absenteeism.
Key Messages
- The formal manufacturing sector in India experiences an output loss of about 2% per degree increase in temperature.
- The informal sector, which accounts for 80% of employment, may be more adversely affected. Recent surveybased research indicates that a one-degree increase in wet bulb temperature is associated with a fall in income by 19% (while a one-degree increase in mean temperature is associated with a 16% fall).
- The temperature is expected to continue increasing, such that the large effects on urban workers, concentrated in the hot months, need to be addressed. Public policy should enable adaptation and social insurance, with fiscal consequences the MoF needs to plan for.
Worldwide, it is estimated that around 320 million informal-sector workers, most of them located in low- and middle-income countries (LMICs), are already exposed to comparable heat for at least one month per year. Hence, the results have implications across the tropical and subtropical developing world.
Keywords
adaptationfiscal impactshealthphysical riskproductivity