Municipalities' budgetary response to natural disasters

Abstract

The objective of this study is to analyze the causal impact of natural disasters on municipal budget choices, using a original database that allows us to study a sample of several thousand municipalities, 22,972 of which were affected by a natural disaster between 2000 and 2019. This quasi-experimental setting allows us to use panel regression models to estimate municipalities' responses to a shock and with respect to their prevention strategies. We find evidence of increased spending for about 10 years after the disaster, together with increased in revenues and debt. Furthermore, it appears that prevention allows municipalities to effectively mitigate the effect of the disaster in terms of public spending, as municipalities with a natural hazard prevention plan in place did not increase their spending and their debt in the long run.