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dc.titleNatural Disasters and Fiscal Procyclicality
dc.contributor.authorAndrian, Leandro Gaston
dc.contributor.authorGalindo, Arturo
dc.contributor.authorSánchez, Gustavo
dc.contributor.authorValencia, Oscar
dc.contributor.orgunitCountry Department Southern Cone
dc.contributor.orgunitCountry Department Central America, Haiti, Mexico, Panama and the Dominican Republic
dc.contributor.orgunitFiscal Management Division
dc.date.available2026-06-01T08:06:00
dc.date.issue2026-06-01T00:06:00
dc.description.abstractThis paper examines how climate-related natural disasters influence the cyclical stance of fiscal policy across 148 countries between 1980 and 2023. Using a dynamic panel System-GMM framework, we document that while fiscal policy has become increasingly countercyclical in many economies, extreme natural disasters systematically reverse this trend, pushing fiscal behavior toward greater procyclicality. The analysis shows that the magnitude of disaster damage, rather than the frequency of events, is the key determinant of this shift. Severe events, defined by high economic losses or large affected populations, significantly strengthen the positive correlation between government spending and the output gap, with effects that grow non-linearly at higher damage levels. We also evaluate mechanisms that can mitigate these dynamics. Greater insurance coverage and higher climate-readiness modestly attenuate disaster-induced procyclicality, while fiscal rules exert the strongest protective effect, rendering fiscal responses acyclical or countercyclical even after extreme shocks. Results are robust across alternative filters for cyclical components and standard diagnostic tests. Overall, the paper highlights the need for climate-aware fiscal frameworks anchored in credible rules, financial preparedness, and adaptive capacity, to preserve stabilization space as natural disasters become more frequent and severe.
dc.format.extent22
dc.identifier.doihttp://dx.doi.org/10.18235/0014055
dc.identifier.urlhttps://publications.iadb.org/publications/english/document/Natural-Disasters-and-Fiscal-Procyclicality.pdf
dc.language.isoen
dc.publisherInter-American Development Bank
dc.subjectPublic Finance
dc.subjectFiscal Policy
dc.subjectDisaster
dc.subjectGross Domestic Product
dc.subjectNatural Disaster
dc.subjectFiscal Rule
dc.subjectPublic Expenditure
dc.subjectEmerging Market
dc.subjectOutput Gap
dc.subjectProduction and Business Cycle
dc.subject.jelcodeE32 - Business Fluctuations • Cycles
dc.subject.jelcodeE62 - Fiscal Policy
dc.subject.jelcodeH30 - Fiscal Policies and Behavior of Economic Agents: General
dc.subject.jelcodeQ54 - Climate • Natural Disasters and Their Management • Global Warming
dc.typeWorking Papers
idb.identifier.pubnumberIDB-WP-01803
idb.operationRG-T4571
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