Let the Rich Be Flooded: The Distribution of Financial Aid and Distress after Hurricane Harvey
48 Pages Posted: 13 Jun 2019 Last revised: 11 Nov 2021
Date Written: May 30, 2019
Outside of flood hazard zones, households must decide whether to insure or rely on disaster assistance to manage flood risk. We use the quasi-random flooding generated by Hurricane Harvey, which hit Houston in August 2017, to understand the implications of flood losses for households with differing access to insurance and credit. Outside the floodplain, credit-constrained homeowners experience a 20% increase in bankruptcies and a 13% increase in the share of debt in severe delinquency in flooded blocks relative to non-flooded areas. Treatment effects are universally insignificant inside the floodplain, implying that flood insurance mitigates the financial impact of flooding across the credit distribution. Disaster assistance, on the other hand, does not appear to counteract the role of initial inequalities on post-disaster credit outcomes. We find SBA disaster loans and, more surprisingly, FEMA grants to both be regressive in allocation. Our results highlight that averages mask important heterogeneity after disasters, which challenges existing narratives of how effectively Federal disaster programs mitigate the financial burden of natural disasters.
Keywords: inequality, financial constraint, bankruptcy, student debt, natural disaster, FEMA, SBA, wealth effects
JEL Classification: Q54, H84, D0, D1, R2
Suggested Citation: Suggested Citation