DP17655 Costly disasters, energy consumption, and the role of fiscal policy

• Fabio Canova Evi Pappa
9 Nov 2022

We examine the dynamic effects of natural disasters in US states and relate them to fiscal policy. Not all disasters are equally costly: only those impacting energy usage have negative output, income and unemployment consequences. Energy responses correlate with the quality of power infrastructures, the share of home ownership, and public insurance policies.
The strictness of the budget rules or the presence of budget stabilization funds are irrelevant to determine the depth of the recession. Counter cyclical fiscal policy reduces the severity of the real downfall. Federal aid is crucial in reducing the negative consequences of disasters.