[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/cge/wacage/620.html
   My bibliography  Save this paper

Natural disasters and local government finance: Evidence from typhoon Haiyan

Author

Listed:
  • Capuno, Joseph

    (University of the Philippines Diliman)

  • Corpuz, Jose

    (University of Warwick)

  • Samuel Lordemus

    (University of Lucerne)

Abstract
This paper examines how natural disasters affect low public finances and their interplay with intergovernmental transfers and external resources. We document the causal effect of a natural disaster on the allocation of local public resources the local government fiscal dynamics by exploiting the random nature of the 2013 Typhoon Haiyan, one of the most devastating natural disasters in recent history. Combining data on local government finance with reports on the level of damages caused by the typhoon, we employ several estimation strategies: we first rely on difference-in-differences and event study designs, and we further address a potential endogeneity concern by instrumenting the intensity exposure to the typhoon with distance to the storm path. We show that local revenue and public expenditures remain largely unaffected, except debt service, which are on average 15% lower in affected cities or municipalities. However, we document important heterogeneity in local revenue responses. We find no support for the moral hazard problem : our results indicate that external aid leads to higher local expenditures, particularly general public services, socioeconomic expenditures, including education and social services, and debt payments. These results highlight the crucial role of central government transfers in supporting local governments and mitigating the geographical economic disparities in the aftermath of exogenous shocks such as natural disasters.

Suggested Citation

  • Capuno, Joseph & Corpuz, Jose & Samuel Lordemus, 2022. "Natural disasters and local government finance: Evidence from typhoon Haiyan," CAGE Online Working Paper Series 620, Competitive Advantage in the Global Economy (CAGE).
    • Handle: RePEc:cge:wacage:620
    as

    Download full text from publisher

    File URL: https://warwick.ac.uk/fac/soc/economics/research/centres/cage/manage/publications/wp620.2022.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Vasco M Carvalho & Makoto Nirei & Yukiko U Saito & Alireza Tahbaz-Salehi, 2021. "Supply Chain Disruptions: Evidence from the Great East Japan Earthquake," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 136(2), pages 1255-1321.
    2. David S. Lee & Justin McCrary & Marcelo J. Moreira & Jack Porter, 2022. "Valid t-Ratio Inference for IV," American Economic Review, American Economic Association, vol. 112(10), pages 3260-3290, October.
    3. Clément de Chaisemartin & Xavier D'Haultfœuille, 2020. "Two-Way Fixed Effects Estimators with Heterogeneous Treatment Effects," American Economic Review, American Economic Association, vol. 110(9), pages 2964-2996, September.
    4. Krzysztof Karbownik & Anthony Wray, 2019. "Long-Run Consequences of Exposure to Natural Disasters," Journal of Labor Economics, University of Chicago Press, vol. 37(3), pages 949-1007.
    5. Ghislain B D Aihounton & Arne Henningsen, 2021. "Units of measurement and the inverse hyperbolic sine transformation," The Econometrics Journal, Royal Economic Society, vol. 24(2), pages 334-351.
    6. Gilberto M. Llanto, 2012. "The Assignment of Functions and Intergovernmental Fiscal Relations in the Philippines Twenty Years after Decentralization," UP School of Economics Discussion Papers 201205, University of the Philippines School of Economics.
    7. Lucie Gadenne, 2017. "Tax Me, but Spend Wisely? Sources of Public Finance and Government Accountability," American Economic Journal: Applied Economics, American Economic Association, vol. 9(1), pages 274-314, January.
    8. Ilan Noy & Toshihiro Okubo & Eric Strobl & Thomas Tveit, 2023. "The fiscal costs of earthquakes in Japan," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 30(5), pages 1225-1250, October.
    9. Simon Freyaldenhoven & Christian Hansen & Jorge Perez Perez & Jesse Shapiro, 2021. "Visualization, Identification, and stimation in the Linear Panel Event-Study Design," Working Papers 21-44, Federal Reserve Bank of Philadelphia.
    10. Noy, Ilan & Nualsri, Aekkanush, 2011. "Fiscal storms: public spending and revenues in the aftermath of natural disasters," Environment and Development Economics, Cambridge University Press, vol. 16(1), pages 113-128, February.
    11. Adaro, Catharine E & Maddawin, Ricxie B. & Diokno-Sicat, Charlotte Justine & Mariano, Ma. Alma P. & Castillo, Angel Faye G., 2020. "Baseline Study on Policy and Governance Gaps for the Local Government Support Fund Assistance to Municipalities (LGSF-AM) Program (Integrated Report)," Discussion Papers DP 2020-03, Philippine Institute for Development Studies.
    12. Gilberto M. Llanto, 2012. "The assignment of functions and intergovernmental fiscal relations in the Philippines 20 years after decentralization," Philippine Review of Economics, University of the Philippines School of Economics and Philippine Economic Society, vol. 49(1), pages 37-80, June.
    13. Victor Hugo de Oliveira & Ines Lee & Climent Quintana-Domeque, 2023. "Natural Disasters and Early Human Development: Hurricane Catarina and Infant Health in Brazil," Journal of Human Resources, University of Wisconsin Press, vol. 58(3), pages 819-851.
    14. Cameron, A. Colin & Gelbach, Jonah B. & Miller, Douglas L., 2011. "Robust Inference With Multiway Clustering," Journal of Business & Economic Statistics, American Statistical Association, vol. 29(2), pages 238-249.
    15. Florencia Torche, 2011. "The Effect of Maternal Stress on Birth Outcomes: Exploiting a Natural Experiment," Demography, Springer;Population Association of America (PAA), vol. 48(4), pages 1473-1491, November.
    16. Tatyana Deryugina, 2017. "The Fiscal Cost of Hurricanes: Disaster Aid versus Social Insurance," American Economic Journal: Economic Policy, American Economic Association, vol. 9(3), pages 168-198, August.
    17. Arlan Brucal & Viktor Roezer & Denyse S. Dookie & Rebecca Byrnes & Majah-Leah V. Ravago & Faye Cruz & Gemma Narisma, 2020. "Disaster impacts and financing: Local insights from the Philippines," Department of Economics, Ateneo de Manila University, Working Paper Series 202015, Department of Economics, Ateneo de Manila University.
    18. Azreen Karim & Ilan Noy, 2020. "The Determinants of Subnational Public Spending Allocation for Disaster Risk Reduction in Bangladesh," CESifo Working Paper Series 8066, CESifo.
    19. Kirchberger, Martina, 2017. "Natural disasters and labor markets," Journal of Development Economics, Elsevier, vol. 125(C), pages 40-58.
    20. Eduardo Cavallo & Sebastian Galiani & Ilan Noy & Juan Pantano, 2013. "Catastrophic Natural Disasters and Economic Growth," The Review of Economics and Statistics, MIT Press, vol. 95(5), pages 1549-1561, December.
    21. Nicolas Van de Sijpe, 2013. "Is Foreign Aid Fungible? Evidence from the Education and Health Sectors," The World Bank Economic Review, World Bank, vol. 27(2), pages 320-356.
    22. Qing Miao & Can Chen & Yi Lu & Michael Abrigo, 2020. "Natural Disasters and Financial Implications for Subnational Governments: Evidence from China," Public Finance Review, , vol. 48(1), pages 72-101, January.
    23. Solomon M. Hsiang & Amir S. Jina, 2014. "The Causal Effect of Environmental Catastrophe on Long-Run Economic Growth: Evidence From 6,700 Cyclones," NBER Working Papers 20352, National Bureau of Economic Research, Inc.
    24. Ms. Nicole Laframboise & Mr. Boileau Loko, 2012. "Natural Disasters: Mitigating Impact, Managing Risks," IMF Working Papers 2012/245, International Monetary Fund.
    25. Elliott, Robert J.R. & Liu, Yi & Strobl, Eric & Tong, Meng, 2019. "Estimating the direct and indirect impact of typhoons on plant performance: Evidence from Chinese manufacturers," Journal of Environmental Economics and Management, Elsevier, vol. 98(C).
    26. Currie, Janet & Rossin-Slater, Maya, 2013. "Weathering the storm: Hurricanes and birth outcomes," Journal of Health Economics, Elsevier, vol. 32(3), pages 487-503.
    27. Jerch, Rhiannon & Kahn, Matthew E. & Lin, Gary C., 2023. "Local public finance dynamics and hurricane shocks," Journal of Urban Economics, Elsevier, vol. 134(C).
    28. Emilia Simeonova, 2011. "Out of Sight, Out of Mind? Natural Disasters and Pregnancy Outcomes in the USA," CESifo Economic Studies, CESifo Group, vol. 57(3), pages 403-431, September.
    29. Pauline Eadie & Maria Ela Atienza & May Tan-Mullins, 2020. "Livelihood and vulnerability in the wake of Typhoon Yolanda: lessons of community and resilience," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 103(1), pages 211-230, August.
    30. Benjamin E. Diokno, 2012. "Fiscal decentralization after 20 years: What have we learned? Where do we go from here?," Philippine Review of Economics, University of the Philippines School of Economics and Philippine Economic Society, vol. 49(1), pages 9-26, June.
    31. Karim, Azreen & Noy, Ilan, 2020. "Risk, poverty or politics? The determinants of subnational public spending allocation for adaptive disaster risk reduction in Bangladesh," World Development, Elsevier, vol. 129(C).
    32. Robert P. Inman, 2008. "The Flypaper Effect," NBER Working Papers 14579, National Bureau of Economic Research, Inc.
    33. Klomp, Jeroen, 2019. "Does government ideology shake or shape the public finances? Empirical evidence of disaster assistance," World Development, Elsevier, vol. 118(C), pages 118-127.
    34. Sotomayor, Orlando, 2013. "Fetal and infant origins of diabetes and ill health: Evidence from Puerto Rico's 1928 and 1932 hurricanes," Economics & Human Biology, Elsevier, vol. 11(3), pages 281-293.
    35. Laura A. Bakkensen & Robert O. Mendelsohn, 2016. "Risk and Adaptation: Evidence from Global Hurricane Damages and Fatalities," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 3(3), pages 555-587.
    36. Joseph J. Capuno, 2001. "Estimating the Income Elasticity of Local Government Revenues and Expenditures under Decentralization," UP School of Economics Discussion Papers 200102, University of the Philippines School of Economics.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ilan Noy & Toshihiro Okubo & Eric Strobl & Thomas Tveit, 2023. "The fiscal costs of earthquakes in Japan," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 30(5), pages 1225-1250, October.
    2. Krzysztof Karbownik & Anthony Wray, 2019. "Long-Run Consequences of Exposure to Natural Disasters," Journal of Labor Economics, University of Chicago Press, vol. 37(3), pages 949-1007.
    3. Susana Ferreira, 2024. "Extreme Weather Events and Climate Change: Economic Impacts and Adaptation Policies," Annual Review of Resource Economics, Annual Reviews, vol. 16(1), pages 207-231, October.
    4. Johar, Meliyanni & Johnston, David W. & Shields, Michael A. & Siminski, Peter & Stavrunova, Olena, 2022. "The economic impacts of direct natural disaster exposure," Journal of Economic Behavior & Organization, Elsevier, vol. 196(C), pages 26-39.
    5. Lin, Youhong & Liu, Feng & Xu, Peng, 2021. "Long-term effects of early-life exposure to tropical cyclones," China Economic Review, Elsevier, vol. 69(C).
    6. Sundar Ponnusamy, 2022. "Natural disasters and missing children," Health Economics, John Wiley & Sons, Ltd., vol. 31(2), pages 399-416, February.
    7. Jerch, Rhiannon & Kahn, Matthew E. & Lin, Gary C., 2023. "Local public finance dynamics and hurricane shocks," Journal of Urban Economics, Elsevier, vol. 134(C).
    8. Robert Reinhardt, 2022. "Shaking up Foreign Finance: FDI in a Post-Disaster World," Working Papers halshs-03908250, HAL.
    9. Tian, Xinping & Gong, Jinquan & Zhai, Zhe, 2022. "Natural disasters and human capital accumulation: Evidence from the 1976 Tangshan earthquake," Economics of Education Review, Elsevier, vol. 90(C).
    10. Robert Reinhardt, 2022. "Shaking up Foreign Finance: FDI in a Post-Disaster World," Documents de travail du Centre d'Economie de la Sorbonne 22024, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    11. Robert Reinhardt, 2022. "Shaking up Foreign Finance: FDI in a Post-Disaster World," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-03908250, HAL.
    12. Matteo Coronese & Federico Crippa & Francesco Lamperti & Francesca Chiaromonte & Andrea Roventini, 2023. "Raided by the storm: how three decades of thunderstorms shaped U.S. incomes and wages," LEM Papers Series 2023/40, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    13. Robert Reinhardt, 2022. "Shaking up Foreign Finance: FDI in a Post-Disaster World," Post-Print halshs-03908250, HAL.
    14. Huang, Lulu & Liu, Qiannan & Tang, Yugang, 2024. "Long-term economic impact of disasters: Evidence from multiple earthquakes in China," World Development, Elsevier, vol. 174(C).
    15. Pelli, Martino & Tschopp, Jeanne & Bezmaternykh, Natalia & Eklou, Kodjovi M., 2023. "In the eye of the storm: Firms and capital destruction in India," Journal of Urban Economics, Elsevier, vol. 134(C).
    16. Markus Brueckner & Sudyumna Dahal & Haiyan Lin, 2024. "Natural Disasters and Human Development in Asia–Pacific: The Role of External Debt," JRFM, MDPI, vol. 17(6), pages 1-27, June.
    17. Boustan, Leah Platt & Kahn, Matthew E. & Rhode, Paul W. & Yanguas, Maria Lucia, 2020. "The effect of natural disasters on economic activity in US counties: A century of data," Journal of Urban Economics, Elsevier, vol. 118(C).
    18. Civelek, Yasin, 2023. "The effect of hurricanes on mental health over the long term," Economics & Human Biology, Elsevier, vol. 51(C).
    19. Philippe Kabore & Nicholas Rivers & Catherine Deri Armstrong, 2023. "Natural disasters and economic performance: Evidence from the Slave Lake wildfire," Working Papers 2301E Classification-D14,, University of Ottawa, Department of Economics.
    20. Ilan Noy & Christopher Edmonds, 2016. "The Economic and Fiscal Burdens of Disasters in the Pacific," CESifo Working Paper Series 6237, CESifo.

    More about this item

    Keywords

    Natural disasters ; local government finance ; Haiyan/Yolanda;
    All these keywords.

    JEL classification:

    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H84 - Public Economics - - Miscellaneous Issues - - - Disaster Aid
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cge:wacage:620. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Jane Snape (email available below). General contact details of provider: https://edirc.repec.org/data/dewaruk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.