Paying for Disasters Before They Happen: Risk Financing and the Subnational Fiscal Gap
Keywords:
disaster risk financing, subnational budgets, climate adaptation finance, risk transfer, fiscal resilienceAbstract
Subnational governments bear disasters first and finance them last, using instruments designed for response rather than for anticipation. This study examines what the evidence establishes about the fiscal cost of disasters, the instruments available to meet it, and where the subnational gap lies. The method is a structured review of research published between 2017 and 2024. Four findings follow. The visible fiscal bill understates the real one: the present value of the increase in non-disaster transfers following hurricanes, sustained for a decade in affected areas, significantly exceeds that of direct disaster aid, so the true cost is carried by routine social spending rather than by disaster budgets. Higher-tier transfers absorb the shock, with a panel of 50 states over 1970 to 2013 finding disaster-induced spending largely financed by federal transfers and total tax revenues little affected though their components fluctuate more. Subnational budgeting for disasters is systematically thin, with a study of 13 regional budgets finding that authorities do not systematically plan funds for crisis situations and that implementation phases are most underfunded. And adaptation finance does not reach the tier that bears the risk, being allocated primarily to multilateral entities and national governments. The study also reports an absence: no verified benefit-cost estimate for prevention was located within the window, despite that claim underpinning most policy argument.References
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