Financing the Reconstruction of Public Capital after a Natural Disaster

43 Pages Posted: 19 Jul 2016

Date Written: June 21, 2016


When a natural disaster destroys public capital, these direct losses are exacerbated by indirect losses arising from reduced output while reconstruction takes place. These indirect losses may be much larger, relative to the direct ones, in low-income countries, because they lack the finance for rapid reconstruction. This paper uses a dynamic general equilibrium model to examine sovereign disaster risk insurance, increased taxation, and budget reallocation as alternative financing mechanisms for countries where increased borrowing is impractical. The analysis suggests that insurance may or may not be helpful, depending on detailed circumstances, and that budget reallocation is potentially very damaging. Raised taxation, if feasible, may be an attractive option.

Keywords: Hazard Risk Management, City to City Alliances, Adaptation to Climate Change, Disaster Management, Urban Economic Development, Social Risk Management, Urban Economics, Non Governmental Organizations, Public Sector Management and Reform, Economics and Institutions, Public Sector Economics, Urban Communities, Public Finance Decentralization and Poverty Reduction, Regional Urban Development, National Urban Development Policies & Strategies

Suggested Citation

Bevan, David and Adam, Christopher Scott, Financing the Reconstruction of Public Capital after a Natural Disaster (June 21, 2016). World Bank Policy Research Working Paper No. 7718, Available at SSRN:

David Bevan (Contact Author)

University of Oxford ( email )

Mansfield Road
Oxford, Oxfordshire OX1 4AU
United Kingdom

Christopher Scott Adam

University of Oxford ( email )

United Kingdom

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