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Flooded with debt

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  • Klomp, Jeroen

Abstract

This study explores if natural disasters are able to trigger a sovereign debt default. Natural disasters make the debt of a country less sustainable as they worsen the public finances of a country. The main findings from our empirical analysis clearly indicate that large-scale natural disasters increase significantly the onset probability of a sovereign debt default by about three percentage-points. It turns out that particularly major earthquakes and storms raise the likelihood of a default as they create the most widespread damage reported worldwide. This will limit the debt servicing opportunities of a country in the future.

Suggested Citation

  • Klomp, Jeroen, 2017. "Flooded with debt," Journal of International Money and Finance, Elsevier, vol. 73(PA), pages 93-103.
    • Handle: RePEc:eee:jimfin:v:73:y:2017:i:pa:p:93-103
    DOI: 10.1016/j.jimonfin.2017.01.006
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    Cited by:

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    2. I. Koetsier, 2017. "The fiscal impact of natural disasters," Working Papers 17-17, Utrecht School of Economics.
    3. Roman Horvath, 2020. "Natural Catastrophes and Financial Development: An Empirical Analysis," Working Papers IES 2020/14, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised May 2020.
    4. Quy Ta & Yothin Jinjarak & Ilan Noy, 2022. "“How Do Shocks Affect International Reserves? A Quasi-Experiment of Earthquakes”," Open Economies Review, Springer, vol. 33(5), pages 945-971, November.
    5. Toan Phan & Felipe Schwartzman, 2023. "Climate Defaults and Financial Adaptation," Working Paper 23-06, Federal Reserve Bank of Richmond.
    6. Richard S. J. Tol, 2021. "The Economic Impact of Climate in the Long Run," World Scientific Book Chapters, in: Anil Markandya & Dirk Rübbelke (ed.), CLIMATE AND DEVELOPMENT, chapter 1, pages 3-36, World Scientific Publishing Co. Pte. Ltd..
    7. Jeroen Klomp & John Sseruyange, 2021. "Earthquakes and Economic Outcomes: Does Central Bank Independence Matter?," Open Economies Review, Springer, vol. 32(2), pages 335-359, April.
    8. Horvath, Roman, 2021. "Natural catastrophes and financial depth: An empirical analysis," Journal of Financial Stability, Elsevier, vol. 53(C).
    9. Richard S. J. Tol, 2022. "State capacity and vulnerability to natural disasters," Chapters, in: Mark Skidmore (ed.), Handbook on the Economics of Disasters, chapter 20, pages 434-457, Edward Elgar Publishing.
    10. Chistoph Grosse-Steffen & Laura Pagenhardt & Malte Rieth, 2021. "Committed to Flexible Fiscal Rules," Working papers 854, Banque de France.
    11. Cuadros-Solas, Pedro J. & Salvador, Carlos & Suárez, Nuria, 2021. "Am I riskier if I rescue my banks? Beyond the effects of bailouts," Journal of Financial Stability, Elsevier, vol. 56(C).
    12. Tian Zhao & Zhixin Liu, 2022. "Drivers of CO 2 Emissions: A Debt Perspective," IJERPH, MDPI, vol. 19(3), pages 1-18, February.
    13. Ryota Nakatani, 2021. "Fiscal Rules for Natural Disaster- and Climate Change-Prone Small States," Sustainability, MDPI, vol. 13(6), pages 1-26, March.
    14. Preeya Mohan & Eric Strobl, 2021. "The impact of tropical storms on the accumulation and composition of government debt," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 28(3), pages 483-496, June.

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    More about this item

    Keywords

    Government debt; Sovereign default; Natural disasters;
    All these keywords.

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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