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Budgeting for disasters: Focusing on the good times

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  • Marvin Phaup
  • Charlotte Kirschner

Abstract

Some ways of budgeting for disasters have the potential to increase welfare by increasing national savings, reducing exposure to risk and promoting mitigation prior to a loss. Those ways can also contribute to aggregate fiscal stability over the long term. The power of budgeting, however, can be misdirected to increase losses and lead to fiscal instability. This paper describes the potential for gain from alternative budgetary treatments of policies aimed at reducing the effects on consumption of random shocks to income and wealth. It identifies a critical difference between alternatives: budgetary recognition of expected costs of relief and recovery before the loss event. We classify those different methods as ex ante and ex post budgeting. We also consider some budgetary mechanisms that can promote effective recognition and constrain opportunistic behavior by elected officials. Finally, this paper describes related budgetary practices in some OECD countries. Many have instituted policies consistent with ex ante budgeting, but we have insufficient information to determine their effectiveness.

Suggested Citation

  • Marvin Phaup & Charlotte Kirschner, 2010. "Budgeting for disasters: Focusing on the good times," OECD Journal on Budgeting, OECD Publishing, vol. 10(1), pages 1-24.
    • Handle: RePEc:oec:govkaa:5kmh5h6tzrns
    DOI: 10.1787/budget-10-5kmh5h6tzrns
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    Cited by:

    1. Alper Döyen & Necati Aras, 2019. "An Integrated Disaster Preparedness Model for Retrofitting and Relief Item Transportation," Networks and Spatial Economics, Springer, vol. 19(4), pages 1031-1068, December.
    2. Mechler,Reinhard & Mochizuki,Junko & Hochrainer-Stigler,Stefan, 2016. "Disaster risk management and fiscal policy : narratives, tools, and evidence associated with assessing fiscal risk and building resilience," Policy Research Working Paper Series 7635, The World Bank.
    3. Daniela Baleva, 2016. "Budget for protection of the population in case of disasters," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 5, pages 136-148.
    4. Masato Abe & Linghe Ye, 2013. "Building Resilient Supply Chains against Natural Disasters: The Cases of Japan and Thailand," Global Business Review, International Management Institute, vol. 14(4), pages 567-586, December.
    5. Susan Newberry, 2016. "Debate: Climate change and (financial) sustainability— special purpose disaster funds as disaster preparedness?," Public Money & Management, Taylor & Francis Journals, vol. 36(4), pages 235-238, May.
    6. Leonard E. Burman & Marvin Phaup, 2011. "Tax Expenditures, the Size and Efficiency of Government, and Implications for Budget Reform," NBER Working Papers 17268, National Bureau of Economic Research, Inc.
    7. Roy T. Meyers, 2017. "Is the U.S. Congress an Insurmountable Obstacle to Any “Far-Sighted Conception of Budgeting”?," Public Budgeting & Finance, Wiley Blackwell, vol. 37(4), pages 5-24, December.
    8. Palmer, Carolyn, 2014. "'Flood and fire and famine': Tax policy lessons from the Australian responses to natural disasters," Working Paper Series 18858, Victoria University of Wellington, Chair in Public Finance.
    9. Shahbaz Mushtaq & Jarrod Kath & Roger Stone & Ross Henry & Peter Läderach & Kathryn Reardon-Smith & David Cobon & Torben Marcussen & Neil Cliffe & Paul Kristiansen & Frederik Pischke, 2020. "Creating positive synergies between risk management and transfer to accelerate food system climate resilience," Climatic Change, Springer, vol. 161(3), pages 465-478, August.
    10. Sungyoon Lee & Jennifer Dodge & Gang Chen, 2022. "The cost of social vulnerability: an integrative conceptual framework and model for assessing financial risks in natural disaster management," 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. 114(1), pages 691-712, October.
    11. Imtiaz Bhatti & Marvin Phaup, 2015. "Budgeting for Fiscal Uncertainty and Bias: A Federal Process Proposal," Public Budgeting & Finance, Wiley Blackwell, vol. 35(2), pages 89-105, June.
    12. Leonard E. Burman & Marvin Phaup, 2012. "Tax Expenditures, the Size and Efficiency of Government, and Implications for Budget Reform," NBER Chapters, in: Tax Policy and the Economy, Volume 26, pages 93-124, National Bureau of Economic Research, Inc.
    13. Lodi, Chiara & Marin, Giovanni & Modica, Marco, 2022. "Fiscal policy response of local governments to floods in Italy," FEEM Working Papers 329435, Fondazione Eni Enrico Mattei (FEEM).
    14. Qing Miao & Yilin Hou & Michael Abrigo, 2018. "Measuring the Financial Shocks of Natural Disasters: A Panel Study of U.S. States," National Tax Journal, National Tax Association;National Tax Journal, vol. 71(1), pages 11-44, March.
    15. Marvin Phaup, 2022. "Federal budget process reform: An economics perspective, with imperfect, “Human” decision‐makers," Public Budgeting & Finance, Wiley Blackwell, vol. 42(3), pages 114-130, September.
    16. Palmer, Carolyn, 2014. "'Flood and fire and famine': Tax policy lessons from the Australian responses to natural disasters," Working Paper Series 3718, Victoria University of Wellington, Chair in Public Finance.
    17. Abrigo , Michael R.M. & Brucal, Arlan, 2019. "National-to-Local Aid and Recovery from Extreme Weather Events: Evidence from the Philippines," ADB Economics Working Paper Series 598, Asian Development Bank.
    18. Tovar Reaños, Miguel A., 2021. "Floods, flood policies and changes in welfare and inequality: Evidence from Germany," Ecological Economics, Elsevier, vol. 180(C).

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