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Natural Disasters and Fiscal Drought

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  • Milivojevic,Lazar

Abstract

This paper examines to what extent slowdowns in economic growth after natural disasters areaccompanied by widening fiscal deficits and corresponding pressures on public debt. Empirical analysis based onexogenous measures of physical disaster intensity shows that natural disasters lead not only to output losses but also tofurther deterioration of countries’ fiscal positions. The effects are persistent and driven by developments inemerging markets and developing economies. A dynamic stochastic general equilibrium model is used to show thepropagation mechanism of an extreme event that affects agricultural productivity. The model features farmersendowed with land with time-varying productivity subject to economic and weather conditions. Simulation resultsillustrate the climate-fiscal nexus existence and highlight the role of structural resilience in limiting the impact ofnatural disasters.

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  • Milivojevic,Lazar, 2023. "Natural Disasters and Fiscal Drought," Policy Research Working Paper Series 10298, The World Bank.
    • Handle: RePEc:wbk:wbrwps:10298
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