The fiscal implications of hurricane strikes in the Caribbean

This paper empirically traces the fiscal impacts of hurricane strikes. To this end, a hurricane damage index is derived from a physical wind field model for a panel of Caribbean countries over 36 years. Results, based on panel VAR and impulse response functions analysis, show that, overall, hurricane strikes exert a short-term impact. Indeed, the study finds that the response of government spending is positive and significant while public investment, debt and tax revenue do not appear to respond (significantly) to hurricane strikes. Moreover, the study finds that Governments respond to hurricane strikes by engaging in short term deficit financing.

► Natural disasters are generally associated with considerable economic losses and sustained disruption to normal economic activity. ► The paper empirically traces the fiscal impact of hurricane strikes. ► A hurricane damage index is derived from a physical wind field model for a panel of Caribbean countries over 36 years. ► Panel VAR results and impulse response functions analysis show that Caribbean countries engage in short term deficit financing.