Fiscal storms: public spending and revenues in the aftermath of natural disasters

We estimate and quantify the fiscal consequences of natural disasters using quarterly fiscal data for a large panel of countries. In our estimations, we employ a panel vector autoregression framework that also controls for the business cycle. In developed countries, we find fiscal behavior in the aftermath of disasters that can best be characterized as counter-cyclical. In contrast, we find pro-cyclical decreased spending and increasing revenues in developing countries following large natural catastrophes. These pro-cyclical fiscal dynamics are likely to worsen the adverse consequences of natural disasters on middle- and low-income countries. We quantify these dynamics.