Financing the costs of disasters: Catastrophe bonds or taxation?

Kensuke Molnar-Tanaka and Hiroaki Sakamoto

No 354, OECD Development Centre Working Papers from OECD Publishing

Abstract: Disaster risks are increasing globally and the economic damages are becoming more severe. The associated costs have grown continuously over the last 60 years, and financing these costs remains a major challenge. Both broadening disaster risk finance options and formulating an effective policy mix of different financial tools have become increasingly important in tackling rising disaster costs. This paper examines two disaster-cost financing tools: catastrophe bonds and taxation, based on a macroeconomic theoretical approach. The results suggest that as far as welfare is concerned, bond options are comparatively advantageous. The paper also discusses the importance of utilising catastrophe bonds and taxation appropriately within the context of disaster response policy.

Keywords: catastrophe bonds; Disaster risk financing; disaster risk management; insurance-linked securities; public finance (search for similar items in EconPapers)
JEL-codes: D53 G1 H2 O40 Q54 (search for similar items in EconPapers)
Date: 2025-06-27
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Persistent link: https://EconPapers.repec.org/RePEc:oec:devaaa:354-en

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