Natural Disaster, Government Revenues and Expenditures: Evidence from High and Middle-Income Countries

This paper examines the dynamic links between government budgets (government expenditures and revenues), natural disaster, and three key macroeconomic indicators; economic growth, inflation rate, and government debt. By studying the annual data for high- and middle-income countries over 1990-2013 and employing a panel vector autoregressive model for detecting Granger causality, we find that there is a big correlation between these variables, including unidirectional causality between natural disasters and government debt. For middle-income countries there is a unidirectional causality from natural disasters to government expenditures. Thus, there is a unidirectional causality between natural disasters and economic growth and government revenues for high- and middle-income countries.