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Financing the costs of disasters: Catastrophe bonds or taxation?

Author

Listed:
  • Kensuke Molnar-Tanaka
  • Hiroaki Sakamoto

Abstract

Disaster risks are increasing globally and the economic damages are becoming more severe. The associated costs have grown continuously over the last 60 years, and financing these costs remains a major challenge. Both broadening disaster risk finance options and formulating an effective policy mix of different financial tools have become increasingly important in tackling rising disaster costs. This paper examines two disaster-cost financing tools: catastrophe bonds and taxation, based on a macroeconomic theoretical approach. The results suggest that as far as welfare is concerned, bond options are comparatively advantageous. The paper also discusses the importance of utilising catastrophe bonds and taxation appropriately within the context of disaster response policy.

Suggested Citation

  • Kensuke Molnar-Tanaka & Hiroaki Sakamoto, 2025. "Financing the costs of disasters: Catastrophe bonds or taxation?," OECD Development Centre Working Papers 354, OECD Publishing.
    • Handle: RePEc:oec:devaaa:354-en
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    More about this item

    Keywords

    catastrophe bonds; Disaster risk financing; disaster risk management; insurance-linked securities; public finance;
    All these keywords.

    JEL classification:

    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • G1 - Financial Economics - - General Financial Markets
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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