Fiscal Effects of Natural Disasters

Not much is known empirically about the fiscal legacy of natural disasters including their effects on the cost of public sector debt, local revenues, and local fiscal reserves. Natural disasters have the potential to cause substantial damage to life, property and infrastructure and may result in the disruption to government financial conditions and operations. This dissertation examines the impacts of natural disasters on the cost of municipal debt, county revenues, and county fiscal reserves and contributes to filling an empirical gap in our understanding of the consequences of natural disasters for the public sector. Chapter 2 looks at the effects of floods, hurricanes and tornadoes on the cost of public sector debt in Texas from 2003 to 2012. It brings together data on debt issuance from the Texas Bond Review Board and data on federal disaster declarations from the Spatial Hazard Events & Losses Database for the United States (SHELDUS). The findings show differential effects of floods and tornadoes on the cost of debt issuance and highlight that some of the effects are more pronounced for non-general obligation bonds. Chapters 3 and 4 use data from the United States Census Bureau, U.S. Census Annual Survey of State & Local Government Finances, Lincoln Institute of Land Policy and Federal Emergency Management Agency datasets from 1982 to 2012 to examine the impacts of natural disasters on county revenues and county fiscal reserves. In Chapter 3, I document negative associations between total revenues and property taxes for tornadoes but positive associations for floods and hurricanes, a finding that is interpreted from the perspective of the literature on creative destruction. Chapter 4 presents evidence that counties in disaster-prone areas tend to have higher fiscal reserves in the form of cash holdings. The positive association between natural disasters and cash holdings at the end of the fiscal year persists even after disasters. These findings suggest that U.S. counties may be strategic in their patterns of accumulating fiscal reserves.