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Extreme Weather Events and Local Fiscal Responses: Evidence from U.S. Counties

Qing Miao, Michael Abrigo, Yilin Hou, Yanjun (Penny) Liao

Economics of Disasters and Climate Change, December 2022

Yilin Hou headshot

Yilin Hou

This paper examines the impacts of floods and hurricanes on U.S. county government finances. Using a novel event study model that allows for heterogeneous treatment effects, we find that a flood or hurricane presidential disaster declaration (PDD) lowers tax revenue but increases government spending and intergovernmental revenues. Compared to flooding, hurricanes result in much larger repercussions on both revenues and borrowing.

Our results also suggest disparate patterns of disaster-induced long-run fiscal impacts in counties with different socioeconomic conditions. Counties with lower incomes or greater social vulnerability tend to experience tax revenue losses and engage in more borrowing after a PDD, whereas higher-income counties see increased tax revenues and spending and also receive more intergovernmental transfers than their poorer counterparts.