How Do Governments Respond after Catastrophes? Natural-Disaster Shocks and the Fiscal Stance
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...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English |
| Published: |
2012
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| Subjects: | |
| Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20110207134355 http://hdl.handle.net/10986/3331 |
| Summary: | 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. |
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