Skip to content

Hou paper on financial shocks of natural disasters published in National Tax Journal

Feb 28, 2018

Measuring the Financial Shocks of Natural Disasters: A Panel Study of U.S. States

Qing Miao, Yilin Hou & Michael Abrigo

National Tax Journal, February 2018

Yilin Hou headshot

Yilin Hou

This paper employs panel vector autoregression to examine the dynamic fiscal response to natural disasters. With 50-state, 1970–2013 panel data on state government finance and disaster damage, the authors estimate disaster impacts on revenue, expenditure, debt issuance, and federal-state transfers. They find that following a disaster, states increase program expenditure and receive more federal transfers. Disasters have limited impact on total tax revenues but amplify fluctuations in sales, income, and property tax revenues. The authors' findings suggest that disaster-induced additional spending is largely financed through federal transfers, which include not only disaster relief funds but also non-disaster-related public welfare assistance.