Center for Policy Research

Working Paper

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

Qing Miao, Yilin Hou & Michael Abrigo

C.P.R. Working Paper No. 199

November 2016

Yilin Hou

Public Administration & International Affairs Department

Center for Policy Research

Natural Disasters

Yilin Hou

Abstract

This paper employs panel vector autoregression to examine the dynamic fiscal response to disaster shocks. With 50-state, 1970-2013 panel data of state government finance and disaster damage, the authors estimate disaster impacts on revenue, expenditure, debt issuance, and intergovernmental transfers. They find that following a disaster, states increase program expenditure, but receive more federal transfers. Disasters have limited impact on total tax revenues but amplify fluctuations in sales, income, and property tax revenues. Our 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 aids.

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