Publication: Fiscal Responses after Catastrophes and the Enabling Role of Financial Development
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Date
2015-01
ISSN
1564-698X
Published
2015-01
Author(s)
Raddatz, Claudio
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Abstract
Natural disasters may constitute a major shock to public finances and debt sustainability because of their impact on output and the need for government response with reconstruction and relief expenses. The question arises of whether governments can use financial development policy as the means to mitigate or insure against this negative fiscal impact. This paper uses a panel vector autoregressive model, estimated on annual data for high- and middle-income countries over 1975–2008, to study the role of debt market development and insurance penetration in enabling fiscal response after catastrophes. The authors find that countries with higher debt market development suffer smaller real consequences from disasters but that their deficits expand further following the mitigating fiscal response. Disasters in countries with high insurance penetration also experience smaller real consequences of disasters but without the need for further deficit expansions. From an ex-post perspective, the availability of insurance could offer the best mitigation approach against the real and fiscal consequences of disasters.
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“Raddatz, Claudio; Melecky, Martin. 2015. Fiscal Responses after Catastrophes and the Enabling Role of Financial Development. World Bank Economic Review. © World Bank. http://hdl.handle.net/10986/24606 License: CC BY-NC-ND 3.0 IGO.”
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World Bank Economic Review
1564-698X
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- Cited 46 times in Scopus (view citations)