Natural Disasters and Fiscal Drought

Lazar Milivojevic

No 10298, Policy Research Working Paper Series from The World Bank

Abstract: This paper examines to what extent slowdowns in economic growth after natural disasters are accompanied by widening fiscal deficits and corresponding pressures on public debt. Empirical analysis based on exogenous measures of physical disaster intensity shows that natural disasters lead not only to output losses but also to further deterioration of countries’ fiscal positions. The effects are persistent and driven by developments in emerging markets and developing economies. A dynamic stochastic general equilibrium model is used to show the propagation mechanism of an extreme event that affects agricultural productivity. The model features farmers endowed with land with time-varying productivity subject to economic and weather conditions. Simulation results illustrate the climate-fiscal nexus existence and highlight the role of structural resilience in limiting the impact of natural disasters.

Date: 2023-02-07
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Persistent link: https://EconPapers.repec.org/RePEc:wbk:wbrwps:10298

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