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Fiscal Policy’s Role in Economic Resilience to Climate Shocks

Author

Listed:
  • Armon Rezai
  • Franz Ruch
  • Rishabh Choudhary
  • John Nana Darko Francois

Abstract

The impacts of climate change on developing economies are becoming increasingly severe, creating challenges for risk management and requiring enhanced levels of resilience. This paper explores how to mitigate the effects of such climate shocks on developing economies, placing a particular focus on the role fiscal policy in creating and strengthening an economy’s resilience. Using data on natural disasters, the analysis shows that economies with constrained fiscal space experience more pronounced negative effects. In an application to a small open economy, the paper tests the presence of the non-linearity of short- and long-run disaster impacts in the World Bank's macroeconomic and fiscal model and illustrates the importance of fiscal policy in mitigating shocks.

Suggested Citation

  • Armon Rezai & Franz Ruch & Rishabh Choudhary & John Nana Darko Francois, 2024. "Fiscal Policy’s Role in Economic Resilience to Climate Shocks," CESifo Working Paper Series 11517, CESifo.
    • Handle: RePEc:ces:ceswps:_11517
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp11517.pdf
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    References listed on IDEAS

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    1. Hallegatte, Stéphane & Jooste, Charl & McIsaac, Florent, 2024. "Modeling the macroeconomic consequences of natural disasters: Capital stock, recovery dynamics, and monetary policy," Economic Modelling, Elsevier, vol. 139(C).
    2. Juan Carlos Benitez & Mario Mansour & Miguel Pecho & Charles Vellutini, 2023. "Building Tax Capacity in Developing Countries," IMF Staff Discussion Notes 2023/006, International Monetary Fund.
    3. Mr. Serhan Cevik & Guohua Huang, 2018. "How to Manage the Fiscal Costs of Natural Disasters," IMF Fiscal Affairs Department 2018/003, International Monetary Fund.
    4. Markus Reichstein & Felix Riede & Dorothea Frank, 2021. "More floods, fires and cyclones — plan for domino effects on sustainability goals," Nature, Nature, vol. 592(7854), pages 347-349, April.
    5. W J Wouter Botzen & Olivier Deschenes & Mark Sanders, 2019. "The Economic Impacts of Natural Disasters: A Review of Models and Empirical Studies," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 13(2), pages 167-188.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    fiscal policy; economic resilience; climate; natural disasters;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management
    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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