Extreme events like hurricanes, earthquakes, or terrorist attacks present major challenges for fiscal systems at all levels of government. Analysts concerned with the fiscal and financial impacts of disasters must attempt to assess the likelihood of rare events of large magnitude such as Hurricane Katrina. Extreme value theory, applied here to flood damage data for Louisiana, offers one promising methodology for this purpose. The experience of Katrina and 9/11 also show that large disasters have large intergovernmental impacts. Individual states could, in principle, engage in more extensive ex ante financial and policy preparations for disasters, including disaster avoidance, but the \u201crevealed institutional structure\u201d exposed by recent experience shows that the US federal system shifts much of the economic incidence of local disasters to the rest of society through intergovernmental transfers. This raises policy questions regarding the assignment of responsibility for disaster avoidance in the US federation. In particular, Federal \u201cownership\u201d of the consequences of disasters may invite or necessitate new forms of Federal \u201ccontrol\u201d of subnational government.
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Paper provided by University of Kentucky, Institute for Federalism and Intergovernmental Relations in its series Working Papers with number
2006-07.
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