Cleansing Floods? Creative Destruction and Government Spending After Disasters

Tarikua Erda

Working Papers from U.S. Census Bureau, Center for Economic Studies

Abstract: Disasters devastate economies, yet productivity can improve in their wake. Why? Using confidential plant-level microdata from the US Census Bureau and an event study design, I trace the creative destruction process that follows large federally declared floods. Exits are concentrated among the least productive plants, whose used machines are then acquired by high-productivity entrants. Survivors upgrade their machinery as they rebuild and see productivity gains. Federal disaster spending facilitates this process by expanding financing access for nimble young and small firms that disproportionately fuel productive reallocation. Without it, financing constraints stifle creative destruction and productivity declines. Ultimately, the relative income gains from federal disaster assistance generate tax revenues far exceeding the policy's upfront cost, making it both efficiency-enhancing and fiscally sound. My findings reveal a novel allocative efficiency channel through which government spending supports post-disaster recovery, with critical implications for a warming world.

Keywords: Natural Disasters; Disaster Aid; Firm Dynamics; Creative Destruction; Allocative Efficiency (search for similar items in EconPapers)
JEL-codes: H84 L26 Q54 R11 (search for similar items in EconPapers)
Date: 2026-08
New Economics Papers: this item is included in nep-bec, nep-ent and nep-sbm
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www2.census.gov/library/working-papers/2026/adrm/ces/CES-WP-26-52.pdf First version, 2026 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cen:wpaper:26-52

Access Statistics for this paper

More papers in Working Papers from U.S. Census Bureau, Center for Economic Studies Contact information at EDIRC.
Bibliographic data for series maintained by Dawn Anderson ().