Local public finance dynamics and hurricane shocks

Abstract

Since 1980, over 2,000 local governments in US Atlantic states have been hit by a hurricane. We study local government fiscal dynamics in the aftermath of hurricanes. These shocks reduce tax revenues, public expenditures, and debt financing in the decade following a hurricane. Hurricanes create collateral fiscal damage for local governments by increasing the cost of debt at critical moments after a strike. Municipalities with a 1 standard deviation-above-average racial minority composition suffer expenditure losses more than 2 times larger and debt default risk 8 times larger than the average municipalities in the decade following a hurricane strike.