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The Impact of Extreme Weather Events on Budget Balances and Implications for Fiscal Policy

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Author Info
Eliza M. Lis () (WHU - Otto Beisheim School of Management, Chair of Macroeconomics, Burgplatz 2, D-56179 Vallendar, Germany.)
Christiane Nickel () (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.)

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Abstract

This paper explores implications of climate change for fiscal policy by assessing the impact of large scale extreme weather events on changes in public budgets. We apply alternative measures for large scale extreme weather events and conclude that the budgetary impact of such events ranges between 0.23% and 1.1% of GDP depending on the country group. Developing countries face a much larger effect on changes in budget balances following an extreme weather event than do advanced economies. Based on these findings, we discuss implications for fiscal policy and publicly-provided disaster insurance. Our policy conclusions point to the enhanced need to reach and maintain sound fiscal positions given that climate change is expected to cause an increase in the frequency and severity of natural disasters. JEL Classification: Q54, Q58, F59, H87.

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Paper provided by European Central Bank in its series Working Paper Series with number 1055.

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Length: 47 pages
Date of creation: May 2009
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Handle: RePEc:ecb:ecbwps:20091055

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Keywords: Global warming; climate change; fiscal sustainability; disasters.;

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