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Measuring the Financial Shocks of Natural Disasters: A Panel Study of U.S. States

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This paper employs panel vector autoregression to examine the dynamic fiscal response to disaster shocks. With 50-state, 1970-2013 panel data of state government finance and disaster damage, we estimate disaster impacts on revenue, expenditure, debt issuance, and intergovernmental transfers. We find that following a disaster, states increase program expenditure, but receive more federal transfers. Disasters have limited impact on total tax revenues but amplify fluctuations in sales, income, and property tax revenues. Our findings suggest that disaster-induced additional spending is largely financed through federal transfers, which include not only disaster relief funds but also non-disaster-related public welfare aids.

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  • Yilin Hou & Qing Miao & Michael Abrigo, 2016. "Measuring the Financial Shocks of Natural Disasters: A Panel Study of U.S. States," Center for Policy Research Working Papers 199, Center for Policy Research, Maxwell School, Syracuse University.
    • Handle: RePEc:max:cprwps:199
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    1. Meri Davlasheridze & Qing Miao, 2021. "Does post-disaster aid promote community resilience? Evidence from federal disaster programs," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 109(1), pages 63-88, October.
    2. Carla Morvan, 2022. "Municipalities' budgetary response to natural disasters," Working Papers halshs-03684732, HAL.
    3. Bo Zhao, 2022. "The Impact of Weather on Local Government Spending," Working Papers 22-22, Federal Reserve Bank of Boston.
    4. Sungyoon Lee & Jennifer Dodge & Gang Chen, 2022. "The cost of social vulnerability: an integrative conceptual framework and model for assessing financial risks in natural disaster management," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 114(1), pages 691-712, October.
    5. Meri Davlasheridze & Qing Miao, 2021. "Natural disasters, public housing, and the role of disaster aid," Journal of Regional Science, Wiley Blackwell, vol. 61(5), pages 1113-1135, November.
    6. Lodi, Chiara & Marin, Giovanni & Modica, Marco, 2022. "Fiscal policy response of local governments to floods in Italy," FEEM Working Papers 329435, Fondazione Eni Enrico Mattei (FEEM).
    7. Preeya Mohan & Eric Strobl, 2021. "The impact of tropical storms on tax revenue," Journal of International Development, John Wiley & Sons, Ltd., vol. 33(3), pages 472-489, April.

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    More about this item

    Keywords

    Natural Disaster; Panel Vector Autoregression; Intergovernmental Transfer;
    All these keywords.

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs

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