The Fiscal Cost of Hurricanes: Disaster Aid versus Social Insurance

Little is known about the fiscal costs of natural disasters, especially regarding social safety nets that do not specifically target extreme weather events. This paper shows that US hurricanes lead to substantial increases in non-disaster government transfers, such as unemployment insurance and public medical payments, in affected counties in the decade after a hurricane. The present value of this increase significantly exceeds that of direct disaster aid. This implies, among other things, that the fiscal costs of natural disasters have been significantly underestimated and that victims in developed countries are better insured against them than previously thought.