Fiscal Multipliers during Natural Disasters

Andreas Dibiasi, Erica Perego and Poilly, Céline

No 21750, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Fiscal multipliers are larger during natural disasters. Using aggregate and state-level U.S. data, we show that the government-spending multiplier is significantly magnified when natural disasters occur. To rationalize this finding, we develop a New-Keynesian model augmented with disaster risk, in which higher public spending generates a larger output expansion through a strengthened investment channel. Two mechanisms are at work. First, by destroying productive capacity, a disaster raises the marginal productivity of capital, which further crowds in private investment. Second, wealth destruction leads households to draw down less of their savings in response to the fiscal shock, which boosts capital supply.

Keywords: State dependence; Natural disasters (search for similar items in EconPapers)
JEL-codes: E32 E62 Q54 (search for similar items in EconPapers)
Date: 2026-07
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