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The Impact of Extreme Weather Events on Budget Balances and Implications for Fiscal Policy

47 Pages Posted: 28 May 2009  

Eliza M. Lis

WHU-Otto Beisheim School of Management

Christiane Nickel

European Central Bank (ECB)

Date Written: May 27, 2009

Abstract

This paper explores implications of climate change for fiscal policy by assessing the impact of large scale extreme weather events on changes in public budgets. We apply alternative measures for large scale extreme weather events and conclude that the budgetary impact of such events ranges between 0.23% and 1.1% of GDP depending on the country group. Developing countries face a much larger effect on changes in budget balances following an extreme weather event than do advanced economies. Based on these findings, we discuss implications for fiscal policy and publicly-provided disaster insurance. Our policy conclusions point to the enhanced need to reach and maintain sound fiscal positions given that climate change is expected to cause an increase in the frequency and severity of natural disasters.

Keywords: Global warming, climate change, fiscal sustainability, disasters

JEL Classification: Q54, Q58, F59, H87

Suggested Citation

Lis, Eliza M. and Nickel, Christiane, The Impact of Extreme Weather Events on Budget Balances and Implications for Fiscal Policy (May 27, 2009). ECB Working Paper No. 1055. Available at SSRN: https://ssrn.com/abstract=1402582

Eliza M. Lis

WHU-Otto Beisheim School of Management ( email )

Burgplatz 2
Vallendar, 56179
Germany

Christiane Nickel (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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