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Weathering an Unexpected Financial Shock: The Role of Federal Disaster Assistance on Household Finance and Business Survival

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  • Justin Gallagher
  • Daniel Hartley
  • Shawn Rohlin

Abstract

First, we document the impact of being hit by a devastating tornado on household finance and business survival. The tornado paths are random and cannot be predicted using risk information. Individuals in severely damaged census blocks have a small reduction in debt and no change in bill delinquency. The business establishment survival rate declines by 9%. Second, we provide insight on the role of federal disaster assistance, which includes direct cash assistance to disaster victims and grants to repair public infrastructure, in mitigating the shock. Individuals in severely damaged blocks have 30% less credit card debt post-disaster when disaster aid is available. Migration from damaged blocks increases. Credit-constrained victims have lower bill delinquency and increase consumption. Disaster assistance is a place-based policy and results in 9% more establishments and 14% more employees post-disaster in the average-damage neighborhood. These effects are concentrated among small nonmanufacturing establishments that rely on local demand.

Suggested Citation

  • Justin Gallagher & Daniel Hartley & Shawn Rohlin, 2023. "Weathering an Unexpected Financial Shock: The Role of Federal Disaster Assistance on Household Finance and Business Survival," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 10(2), pages 525-567.
    • Handle: RePEc:ucp:jaerec:doi:10.1086/721654
    DOI: 10.1086/721654
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    Cited by:

    1. Benjamin L. Collier & Daniel A. Hartley & Benjamin J. Keys & Jing Xian Ng, 2024. "Credit When You Need It," NBER Working Papers 32845, National Bureau of Economic Research, Inc.
    2. Justin Contat & Carrie Hopkins & Luis Mejia & Matthew Suandi, 2024. "When climate meets real estate: A survey of the literature," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 52(3), pages 618-659, May.
    3. Bo Zhao, 2023. "The Impact of a Man-made Disaster on Consumer Credit Outcomes: Evidence from the 2018 Merrimack Valley Natural Gas Explosions," Working Papers 23-17, Federal Reserve Bank of Boston.
    4. Barnes, Stephen & Joshi, Swarup & Terrell, Dek, 2023. "Disasters and health insurance: Evidence from Louisiana," Economic Modelling, Elsevier, vol. 128(C).

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