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 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.

Bibliographic Details

Main Authors:	Melecky, Martin, Raddatz, Claudio
Language:	English
Published:	2011-02-01
Subjects:	ACCESS TO CAPITAL, ACCESS TO CREDIT, ACCESS TO DEBT MARKETS, ACCESS TO FUNDS, ACCIDENTS, AUTOREGRESSION, BANK POLICY, BIASES, BORROWING, BUDGET CONSTRAINT, BUDGET DEFICIT, BUDGET DEFICITS, BUSINESS CYCLE, CAPITAL MARKETS, CAPITAL STOCK, CASH PAYMENTS, CD, CREDIT CONSTRAINT, CREDITS, DAMAGES, DEBT, DEBT BURDEN, DEBT BURDENS, DEBT INSTRUMENTS, DEBT LEVEL, DEBT LEVELS, DEFICIT FINANCING, DEFICITS, DEPOSIT, DEPOSIT INTEREST, DEVELOPING COUNTRIES, DEVELOPMENT BANK, DEVELOPMENT ECONOMICS, DEVELOPMENT POLICY, DISASTER MITIGATION, DISASTER MITIGATION MEASURES, DISASTER REDUCTION, DISASTER RELIEF, DISASTER RESPONSE, DISASTER RISK, DOMESTIC DEBT, DROUGHTS, EARTHQUAKES, ECONOMETRIC ANALYSIS, ECONOMETRICS, ECONOMIC ACTIVITY, ECONOMIC DEVELOPMENT, EMERGENCY RELIEF, ENDOGENOUS VARIABLES, EXCHANGE RATE, EXOGENOUS VARIABLES, EXPENDITURE, EXPORTS, EXTERNAL SHOCKS, FAMINES, FINANCIAL COSTS, FINANCIAL DEVELOPMENT, FINANCIAL INSTRUMENTS, FINANCIAL MARKET, FINANCIAL PRODUCTS, FINANCIAL RESOURCES, FINANCIAL RISKS, FINANCIAL SUPPORT, FINANCIAL SYSTEM, FISCAL BURDENS, FISCAL DEFICIT, FISCAL EFFORT, FISCAL POLICY, FISCAL RESOURCES, FLOODS, FUTURE RESEARCH, GDP, GDP PER CAPITA, GOVERNMENT BUDGET, GOVERNMENT DEBT, GOVERNMENT DEFICIT, GOVERNMENT EXPENDITURE, GOVERNMENT EXPENDITURES, GOVERNMENT FINANCING, GOVERNMENT REVENUE, GOVERNMENT REVENUES, GOVERNMENT SPENDING, HEDGES, HUMAN CAPITAL, HURRICANES, INCOME, INCOME LEVEL, INCOME LEVELS, INDEBTEDNESS, INFLATION, INFLATION RATE, INITIAL DEBT, INSURANCE, INSURANCE MARKET, INSURANCE MARKETS, INSURANCE PENETRATION, INSURANCE POLICIES, INSURANCE PREMIUM, INTEREST COSTS, INTEREST PAYMENTS, INTEREST RATE, INTEREST RATE RISK, INTEREST RATES, INTERNATIONAL BANK, INTERNATIONAL DEBT, INTERNATIONAL DEBT MARKETS, INTERNATIONAL ECONOMICS, INTERNATIONAL FINANCIAL MARKETS, INTERNATIONAL FINANCIAL STATISTICS, ISSUANCE, LESS DEVELOPED COUNTRIES, LEVEL OF DEBT, LLC, LOW INTEREST RATES, MACROECONOMIC CONDITIONS, MACROECONOMIC FLUCTUATIONS, MACROECONOMIC PERFORMANCE, MACROECONOMIC VARIABLE, MACROECONOMIC VARIABLES, MACROECONOMICS, MARGINAL PRODUCT, MARKET DEVELOPMENT, MIDDLE INCOME COUNTRIES, MONETARY FUND, MONETARY POLICY, MONEY MARKET, MONEY MARKET RATE, MONEY MARKET RATES, MULTIPLIER EFFECT, MULTIPLIERS, NATURAL CATASTROPHES, NATURAL DISASTER, NATURAL DISASTERS, OPEN ECONOMY, OUTPUT LOSS, OUTPUT LOSSES, PRICE VALUES, PRIVATE CREDIT, PUBLIC FINANCE, PUBLIC FINANCES, PUBLIC GOOD, PURCHASING POWER, PURCHASING POWER PARITY, REAL GDP, RECEIPTS, RECONSTRUCTION, RETURN, RISK MANAGEMENT, RISK MITIGATION, RISK PREMIUM, SAFETY NETS, SOURCES OF FUNDS, SOVEREIGN DEBT, TAX, TAX COLLECTIONS, TAXATION, TIDAL WAVES, TOTAL DEBT, VOLCANO, WAGES, WEALTH, WEALTH EFFECT, WEALTH EFFECTS,
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 https://hdl.handle.net/10986/3331
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