Natural Hazards and Fiscal Drought
This paper examines to what extent slowdowns in economic growth after natural disasters are accompanied by widening fiscal deficits and corresponding pressures on public debt. It relies on the ifo GAME database which contains exogenous measures of physical disaster intensity, well suited for causal analysis.
The analyses in this paper show that natural disasters lead to fiscal space shrinkage along with a slowdown in economic growth. A disaster of one standard deviation above the mean of the disaster index reduces output growth per capita by 1.32 percent and increases debtto-GDP by 1.58 percentage points. The results are driven by developments in EMDEs and persist in the medium term. The observed climate-fiscal nexus implies that disaster prone countries may feature a limited capacity to respond to extreme events, but also to build up the necessary resilience.
Explore further
![Cover](/sites/default/files/styles/por/public/2023-03/Screenshot%202023-03-22%20at%2010.28.34.png.jpg?itok=C1oCj9W8)