How Do Governments Respond after Catastrophes? Natural-Disaster Shocks and the Fiscal Stance

59 Pages Posted: 20 Apr 2016

See all articles by Martin Melecky

Martin Melecky

World Bank

Claudio E. Raddatz

University of Chile, School of Economics and Business

Date Written: February 1, 2011

Abstract

Natural disasters could constitute a major shock to public finances and debt sustainability because of their impact on output and the need for reconstruction and relief expenses. This paper uses a panel vector autoregressive model to systematically estimate the impact of geological, climatic, and other types of natural disasters on government expenditures and revenues using annual data for high and middle-income countries over 1975-2008. The authors find that, on average budget, deficits increase only after climatic disasters, but for lower-middle-income countries, the increase in deficits is widespread across all events. Disasters do not lead to larger deficit increases or larger output declines in countries with higher initial government debt. Countries with higher financial development suffer smaller real consequences from disasters, but deficits expand further in these countries. Disasters in countries with high insurance penetration also have smaller real consequences but do not result in deficit expansions. From an ex-post perspective, the availability of insurance offers the best mitigation approach against real and fiscal consequences of disasters.

Keywords: Debt Markets, Natural Disasters, Economic Theory & Research, Disaster Management, Access to Finance

Suggested Citation

Melecky, Martin and Raddatz, Claudio E., How Do Governments Respond after Catastrophes? Natural-Disaster Shocks and the Fiscal Stance (February 1, 2011). World Bank Policy Research Working Paper No. 5564, Available at SSRN: https://ssrn.com/abstract=1759155

Martin Melecky (Contact Author)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Claudio E. Raddatz

University of Chile, School of Economics and Business ( email )

Diagonal Paraguay 257, Of. 1206
Santiago, R. Metropolitana 7520421
Chile

HOME PAGE: http://alum.mit.edu/www/craddatz

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
185
Abstract Views
1,076
rank
203,114
PlumX Metrics