Publicação
Shaken balances: climate risks and the dynamics of fiscal and external sustainability
| Resumo: | This paper examines the impact of natural disasters on fiscal and external sustainability across 134 economies from 1980 to 2023. We adopt a two-step approach: first, we estimate country-specific, time-varying sustainability coefficients; second, we assess their determinants using Weighted Least Squares panel regressions with fixed effects. To complement the long-run analysis, we employ local projections to capture the short-term dynamics following disaster-related mortality, vulnerability, and resilience shocks. Results show that natural disasters weaken fiscal sustainability, particularly in emerging and vulnerable economies. Vulnerability exacerbates fiscal and external fragility, while resilience mitigates adverse effects on public accounts. Local projections reveal that fiscal sustainability deteriorates significantly in the medium term after disaster shocks, whereas external sustainability responses are more muted and heterogeneous. Together, these findings highlight the importance of combining long and short-run approaches to understand how climate shocks propagate through macroeconomic channels and to inform adaptive, risk-sensitive fiscal policy frameworks. |
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| Autores principais: | Afonso, António |
| Outros Autores: | Alves, José; Jalles, João; Monteiro, Sofia |
| Assunto: | Fiscal Sustainability External Sustainability Climate Risk Natural Disasters Local Projections Weighted Least Squares |
| Ano: | 2025 |
| País: | Portugal |
| Tipo de documento: | working paper |
| Tipo de acesso: | acesso aberto |
| Instituição associada: | Universidade de Lisboa |
| Idioma: | inglês |
| Origem: | Repositório da Universidade de Lisboa |
| Resumo: | This paper examines the impact of natural disasters on fiscal and external sustainability across 134 economies from 1980 to 2023. We adopt a two-step approach: first, we estimate country-specific, time-varying sustainability coefficients; second, we assess their determinants using Weighted Least Squares panel regressions with fixed effects. To complement the long-run analysis, we employ local projections to capture the short-term dynamics following disaster-related mortality, vulnerability, and resilience shocks. Results show that natural disasters weaken fiscal sustainability, particularly in emerging and vulnerable economies. Vulnerability exacerbates fiscal and external fragility, while resilience mitigates adverse effects on public accounts. Local projections reveal that fiscal sustainability deteriorates significantly in the medium term after disaster shocks, whereas external sustainability responses are more muted and heterogeneous. Together, these findings highlight the importance of combining long and short-run approaches to understand how climate shocks propagate through macroeconomic channels and to inform adaptive, risk-sensitive fiscal policy frameworks. |
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