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This paper employs panel vector autoregression to examine the dynamic fiscal response to disaster shocks. With 50-state, 1970-2013 panel data of state government finance and disaster damage, we estimate disaster impacts on revenue, expenditure, debt issuance, and intergovernmental transfers. We find that following a disaster, states increase program expenditure, but receive more federal transfers. Disasters have limited impact on total tax revenues but amplify fluctuations in sales, income, and property tax revenues. Our findings suggest that disaster-induced additional spending is largely financed through federal transfers, which include not only disaster relief funds but also non-disaster-related public welfare aids.

How do innovators respond to the shock of a natural disaster? Do natural disasters spur technical innovations that can reduce the risk of future hazards? This paper examines the impact of three types of natural disasters including earthquakes, droughts and flooding on the innovation of their respective mitigation technologies. Using patent and disaster data, our study is the first to relate natural disasters to technology innovation, and also presents the first attempt to empirically examine adaptation responses to climate change across multiple sectors at the country level. Overall, we show that natural disasters lead to more risk-mitigating innovations, while the degree of influence varies across different types of disasters and technologies.4 measures, at either the global level or at the country level, and many climate models simply treat adaptation as autonomous. For instance, recent examples of climate policy models incorporating adaptation are the AD-DICE model (deBruin et al. 2009), the WITCH model (Bosello, Carraro, and De Cian, 2009), which assesses the optimal mix of mitigation and adaptation measures, and the FUND model, which has been used to analyze the tradeoff between mitigation and adaptation for protecting coastlines (Tol, 2007). None of these models consider the possibility that the tendency and ability to adapt are endogenous. Our empirical evidence of reactive risk-mitigating innovations can inform the current endeavors in integrated assessment modeling of climate change, and more specifically, suggests the possibility of treating adaptation as a function of previous disaster losses. Finally, this paper also contributes to the literature of endogenous technological change by testing the impact of natural disasters as a stimulus for innovation.The remainder of this paper is organized as follows. Section 2 provides a review of the relevant literature. Section 3 discusses a conceptual framework and lays out our key hypotheses.Section 4 describe the data sources and present some descriptive statistics. Section 5 discusses the empirical model and our results. Section 6 concludes. Literature reviewThis paper is part of a growing literature on the economics of natural disasters (for a survey of the literature, see Cavallo andNoy, 2010 andMobarak, 2011). This literature primarily consists of two bodies of research, one concerning the economic effects of natural disasters, and the other assessing the determinants of natural disaster impacts (i.e., treating disaster damages as a function of natural and social factors). While our research falls into the first category, since we consider natural disasters as an explanatory variable, we also base our conceptual and empirical models partly on the second line of research which suggests 5 that disaster impacts are endogenous.Most empirical studies concerning the economic impacts of natural disasters (the first category) focus on assessing the costs of disasters or the impact of disaster shocks on output growth using macroeconomic indicators and sector-specif...

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