Let the Rich Be Flooded: The Distribution of Financial Aid and Distress after Hurricane Harvey

59 Pages Posted: 13 Jun 2019 Last revised: 13 May 2021

See all articles by Stephen B. Billings

Stephen B. Billings

University of Colorado - Boulder

Emily Gallagher

University of Colorado at Boulder - Department of Finance; Federal Reserve Banks - Federal Reserve Bank of St. Louis

Lowell Ricketts

Federal Reserve Banks - Federal Reserve Bank of St. Louis

Date Written: May 30, 2019

Abstract

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 at different points in the wealth distribution. We begin by characterizing the allocation of SBA disaster loans and FEMA grants as regressive. For example, per dollar of damage, 28% less in SBA loan dollars flowed into neighborhoods where residents had a more limited ability to repay (and, hence, qualify for) an SBA loan. In turn, heavy flooding increased the bankruptcy rate in these same areas by 1.4 percentage points (or 39%) relative to similar areas that did not flood. Delinquency follows a similar pattern. In contrast, flood victims with the highest likelihood of being approved for an SBA loan see a small, relative decrease in their delinquent debt after flooding – consistent with SBA loans acting as a liquidity infusion. Flood insurance, unlike disaster assistance, mitigates the credit impact of flooding across the wealth distribution. Our results highlight that averages mask important heterogeneity after disasters, which challenges existing narratives of how effectively Federal disaster programs absorb financial shocks.

Keywords: inequality, financial constraint, bankruptcy, student debt, natural disaster, FEMA, SBA, wealth effects

JEL Classification: Q54, H84, D0, D1, R2

Suggested Citation

Billings, Stephen B. and Gallagher, Emily and Ricketts, Lowell, Let the Rich Be Flooded: The Distribution of Financial Aid and Distress after Hurricane Harvey (May 30, 2019). Available at SSRN: https://ssrn.com/abstract=3396611 or http://dx.doi.org/10.2139/ssrn.3396611

Stephen B. Billings

University of Colorado - Boulder ( email )

Leeds School of Business
Koelbel Building
Boulder, CO US 80309
United States

Emily Gallagher (Contact Author)

University of Colorado at Boulder - Department of Finance ( email )

Campus Box 419
Boulder, CO 80309
United States

Federal Reserve Banks - Federal Reserve Bank of St. Louis ( email )

411 Locust St
Saint Louis, MO 63011
United States

Lowell Ricketts

Federal Reserve Banks - Federal Reserve Bank of St. Louis ( email )

411 Locust St
Saint Louis, MO 63011
United States

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