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Shake me the money!

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  • Francesco Porcelli

    ()
    (University of Exeter, Business School)

  • Riccardo Trezzi

    ()
    (University of Cambridge, Faculty of Economics)

Abstract

During a natural disaster, the negative supply shock due to the destruction of productive capacity is counteracted by a positive demand shock due to public grants for assistance and reconstruction, positing an identification issue in empirical work. Focusing on the 2009 ’Aquilano’ earthquake in Italy as a case study, we take advantage of quantified measure of damages for 75,424 buildings to estimate the negative supply shock and of a law issued to allocate reconstruction grants, which resulted in a sharp, exogenous discontinuity in transfers and output behavior across neighboring municipalities to estimate the positive demand shock. Diff-in-diff analysis suggests that local output multipliers of reconstruction grants (net of marginal tax rebates) are below unity. Yet the size of the grants act as a public insurance scheme, preventing a fall in output.

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File URL: http://www.centreformacroeconomics.ac.uk/pdf/CFMDP2014-18-Paper.pdf
File Function: First version, 2014
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Bibliographic Info

Paper provided by Centre for Macroeconomics (CFM) in its series Discussion Papers with number 1418.

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Length: 47 pages
Date of creation: Jul 2014
Date of revision:
Handle: RePEc:cfm:wpaper:1418

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Web page: http://www.centreformacroeconomics.ac.uk/
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Keywords: Natural disasters; Fiscal multipliers; Mercalli scale;

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  1. Emi Nakamura & J?n Steinsson, 2014. "Fiscal Stimulus in a Monetary Union: Evidence from US Regions," American Economic Review, American Economic Association, American Economic Association, vol. 104(3), pages 753-92, March.
  2. Loayza, Norman & Olaberria, Eduardo & Rigolini, Jamele & Christiaensen, Luc, 2009. "Natural disasters and growth - going beyond the averages," Policy Research Working Paper Series 4980, The World Bank.
  3. J. Vernon Henderson & Adam Storeygard & David N. Weil, 2009. "Measuring Economic Growth from Outer Space," NBER Working Papers 15199, National Bureau of Economic Research, Inc.
  4. Michael Woodford, 2010. "Simple Analytics of the Government Expenditure Multiplier," Discussion Papers, Columbia University, Department of Economics 0910-09, Columbia University, Department of Economics.
  5. Noy, Ilan, 2009. "The macroeconomic consequences of disasters," Journal of Development Economics, Elsevier, Elsevier, vol. 88(2), pages 221-231, March.
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