Let the rich be flooded: The distribution of financial aid and distress after hurricane harvey

Stephen B. Billings, Emily A. Gallagher and Lowell Ricketts

Journal of Financial Economics, 2022, vol. 146, issue 2, 797-819

Abstract: Outside of flood hazard zones, households must decide whether to insure or rely on disaster assistance to manage flood risk. We use the quasi-random flooding generated by Hurricane Harvey, which hit Houston in August 2017, to understand the implications of flood losses for households with differing access to insurance and credit. Outside the floodplain, credit-constrained homeowners experience a 20% increase in bankruptcies and a 13% increase in the share of debt in severe delinquency in flooded blocks relative to non-flooded areas. Treatment effects are universally insignificant inside the floodplain, implying that flood insurance mitigates the financial impact of flooding across the credit distribution. Disaster assistance, on the other hand, does not appear to counteract the role of initial inequalities on post-disaster credit outcomes. We find SBA disaster loans and, more surprisingly, FEMA grants to both be regressive in allocation. Our results highlight that averages mask important heterogeneity after disasters, which challenges existing narratives of how effectively Federal disaster programs mitigate the financial burden of natural disasters.

Keywords: Inequality; Bankruptcy; Climate change; Natural disaster; FEMA; SBA (search for similar items in EconPapers)
JEL-codes: D0 D1 H84 Q54 R2 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (31)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:146:y:2022:i:2:p:797-819

DOI: 10.1016/j.jfineco.2021.11.006

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