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Shake me the money!

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  • Porcelli, Francesco
  • Trezzi, Riccardo

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.

Suggested Citation

  • Porcelli, Francesco & Trezzi, Riccardo, 2014. "Shake me the money!," LSE Research Online Documents on Economics 86339, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:86339
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    References listed on IDEAS

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    1. Eduardo Cavallo & Ilan Noy, 2009. "The Economics of Natural Disasters: A Survey," Research Department Publications 4649, Inter-American Development Bank, Research Department.
    2. Noy, Ilan, 2009. "The macroeconomic consequences of disasters," Journal of Development Economics, Elsevier, vol. 88(2), pages 221-231, March.
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    9. Eduardo Cavallo & Ilan Noy, 2009. "The Economics of Natural Disasters: A Survey," Research Department Publications 4649, Inter-American Development Bank, Research Department.
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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Evidence from the 2009 L’Aquila earthquake shows the importance of public grants in stimulating output following an economic shock
      by Blog Admin in EUROPP European Politics and Policy on 2014-09-25 19:05:30

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    Cited by:

    1. Corsetti, Giancarlo & Simonelli, Saverio & Acconcia, Antonio, 2015. "The Consumption Response to Liquidity-Enhancing Transfers: Evidence from Italian Earthquakes," CEPR Discussion Papers 10698, C.E.P.R. Discussion Papers.
    2. Antonio Acconcia & Giancarlo Corsetti & Saverio Simonelli, 2020. "Liquidity and Consumption: Evidence from Three Post-earthquake Reconstruction Programs in Italy," American Economic Journal: Macroeconomics, American Economic Association, vol. 12(3), pages 319-346, July.

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    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General

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