Séminaire d’économie de Bordeaux

Céline Poilly

(AMSE)

Fiscal Multipliers during Natural Disasters

(with Andreas Dibiasi and Erica Perego)

Abstract: Fiscal multipliers are larger during natural disasters. Using aggregate and state-level U.S. data, we show that the government-spending multiplier is significantly magnified when natural disasters occur. To rationalize this finding, we develop a New-Keynesian model augmented with disaster risk, in which higher public spending generates a larger output expansion through a strengthened investment channel. Two mechanisms are at work. First, by destroying productive capacity, a disaster raises the marginal productivity of capital, which further crowds in private investment. Second, wealth destruction leads households to draw down less of their savings in response to the fiscal shock, which boosts capital supply.

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