Job Market Paper

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Municipalities' budgetary responses to natural disasters

This figure shows the share of natural disasters that occurred between 1982 and 2020 at the municipal level by type of shock. A very weak exposure means that no more than two shocks have affected this municipality, a weak exposure corresponds to a municipality that has suffered a maximum of 5 disasters, a moderate exposure includes 5 to 10 shocks, a strong exposure means an exposure of less than 20 shocks, while a very strong exposure shows a municipality that has experienced more than 20 climatic events.

Abstract :

The aim of this paper is to examine the causal impact of natural disasters on municipalities' budgetary choices. I utilize an original database that enables the study of a sample comprising all French municipalities, of which 22,972 were affected by a natural disaster between 2000 and 2019. This exploratory analysis employs two distinct dynamic methodologies: Panel Vector Autoregression model and Staggered Difference in Difference, to estimate municipal responses to natural disasters.

I show that a shock leads to an increase in spending and revenues in the aftermath of the disaster, followed by a decrease from 7 to 10 years later. Furthermore, I observe that municipalities with varying financial health appear to react differently.

Keywords : Local public finance, Local expenditure, Natural disasters

JEL Codes : H72, Q54, R50