Working Paper: NBER ID: w28050
Authors: Rhiannon Jerch; Matthew E. Kahn; Gary C. Lin
Abstract: Since 1980, over 2,000 local governments in US Atlantic and Gulf states have been hit by a hurricane. Such natural disasters can exert severe budgetary pressure on local governments’ ability to provide critical infrastructure, goods, and services. We study local government revenue, expenditure, and borrowing dynamics in the aftermath of hurricanes. These shocks reduce tax revenues and expenditures, and increase the cost of debt in the decade following exposure. Major hurricanes have much larger effects than minor hurricanes. Our results reveal how hurricanes create collateral fiscal damage for local governments by increasing the cost of debt at critical moments after a hurricane strike. Municipalities with a racial minority composition 1 standard deviation above the sample mean suffer expenditure losses more than 2 times larger and debt default risk 8 times larger than municipalities with average racial composition in the decade following a hurricane strike. These results suggest that climate change can exacerbate environmental justice challenges.
Keywords: Hurricanes; Local Government Finance; Environmental Justice
JEL Codes: H72; H74
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Hurricanes (Q54) | Declines in local revenues (H71) |
| Hurricanes (Q54) | Declines in expenditures (H59) |
| Hurricanes (Q54) | Increases in debt default risk (G33) |
| Hurricanes (Q54) | Declines in outstanding debt (H63) |
| Hurricanes (Q54) | Expenditure losses in municipalities with high racial minority composition (H76) |
| Hurricanes (Q54) | Exacerbation of environmental justice challenges (Q53) |