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Natural Disasters and Financial Implications for Subnational Governments: Evidence from China

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  • Qing Miao
  • Can Chen
  • Yi Lu
  • Michael Abrigo

Abstract

Because of their uncertain and destructive nature, natural disasters can pose severe shocks to societies and jurisdictions across all levels of government. Disaster-related financial risk is a critical problem in developing countries where people are highly vulnerable to the losses of natural hazards and climate change. This study empirically examines the fiscal impact of natural disasters at the provincial government level in China. Using a panel vector autoregression model, we find that natural disasters increase a province’s total governmental spending and intergovernmental revenues received from the central government while having little effect on its tax revenues. In particular, earthquakes and tropical storms cause larger impacts on spending and intergovernmental transfers. We also show that governments in higher-income Chinese provinces experience larger increases in spending and intergovernmental transfer following natural disasters than lower-income provincial governments. Our results provide important implications for the financial management of disaster risks in the developing context.

Suggested Citation

  • 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.
    • Handle: RePEc:sae:pubfin:v:48:y:2020:i:1:p:72-101
    DOI: 10.1177/1091142119884710
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    References listed on IDEAS

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    Cited by:

    1. Chiara Lodi & Giovanni Marin & Marco Modica, 2022. "Fiscal policy response of local governments to floods in Italy," Working Papers 2022.34, Fondazione Eni Enrico Mattei.
    2. 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.
    3. Carla Morvan, 2022. "Municipalities' budgetary response to natural disasters," Working Papers halshs-03684732, HAL.
    4. Zhao, Xin-Xin & Zheng, Mingbo & Fu, Qiang, 2022. "How natural disasters affect energy innovation? The perspective of environmental sustainability," Energy Economics, Elsevier, vol. 109(C).
    5. Waseem Akhter & Khalid Zaman & Abdelmohsen A. Nassani & Muhammad Moinuddin Qazi Abro, 2020. "Nexus between natural and technical disaster shocks, resource depletion and growth-specific factors: evidence from quantile regression," 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. 104(1), pages 143-169, October.
    6. Yu Shi & Jingran Sun, 2021. "The Influence of Neighboring Jurisdictions Matters: Examining the Impact of Natural Disasters on Local Government Fiscal Accounts," Public Finance Review, , vol. 49(3), pages 435-463, May.

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