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Fiscal Storms: Public Spending and Revenues in the Aftermath of Natural Disasters

Author

Listed:
  • Ilan Noy

    (Department of Economics, University of Hawaii at Manoa)

  • Aekkanush Nualsri

    (Department of Economics, University of Hawaii at Manoa)

Abstract

Recent research in both the social and natural sciences has been devoted to increasing our ability to predict disasters, prepare for them and mitigate their costs. Curiously, we appear to know very little about the fiscal consequences of disasters. The likely fiscal impact of a natural disaster has not been examined before in any comparable or comparative framework. We estimate and quantify the fiscal consequences of natural disasters using quarterly fiscal and disaster data for a large panel of countries. In our estimations, we employ a panel VAR framework that is similar to Burnside et al. (Journal of Economic Theory, 2004), that also controls for the business cycle. We find fiscal behavior in the aftermath of disasters in developed countries that can best be characterized as counter-cyclical. In contrast, we find pro-cyclical decreased spending and increasing revenues in developing countries following large natural disasters. We quantify these effects.

Suggested Citation

  • Ilan Noy & Aekkanush Nualsri, 2008. "Fiscal Storms: Public Spending and Revenues in the Aftermath of Natural Disasters," Working Papers 200809, University of Hawaii at Manoa, Department of Economics.
    • Handle: RePEc:hai:wpaper:200809
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    File URL: http://www.economics.hawaii.edu/research/workingpapers/WP_08-9.pdf
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    Keywords

    natural disasters; fiscal policy;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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