The Dynamic Effects of Hurricanes in the US: The Role of Non-Disaster Transfer Payments

Abstract

We know little about the dynamic economic impacts of natural disasters. I examine the effect of hurricanes on US counties’ economies 0-10 years after landfall. Overall, I find no substantial changes in county population, earnings, or the employment rate. The largest empirical effect of a hurricane is observed in large increases in government transfer payments to individuals, such as unemployment insurance. The estimated magnitude of the extra transfer payments is large. While per capita disaster aid averages $356 per hurricane in current dollars, I estimate that in the eleven years following a hurricane an affected county receives additional non-disaster government transfers of $67 per capita per year. Private insurance-related transfers over the same time period average only $2:4 per capita per year. These results suggest that a non-trivial portion of the negative impact of hurricanes is absorbed by existing social safety net programs. The fiscal costs of natural disasters are thus much larger than the cost of disaster aid alone. Because of the deadweight loss of taxation and moral hazard concerns, the benefits of policies that reduce disaster vulnerability, such as climate change mitigation and removal of insurance subsidies, are larger than previously thought. Finally, the substantial increase in non-disaster transfers suggests that the relative resilience of the United States to natural disasters may be in part due to various social safety nets.