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Faculty of Economics

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Trezzi, R. and Porcelli, F.

Shake me the money!

CWPE1419

Abstract: During a natural disaster, the negative supply shock due to the destruction of productive capacity is counteracted by a positive demand shock due to public grants for assistance and reconstruction positing an identification issue in empirical work. Focusing on the 2009 'Aquilano' earthquake in Italy as a case study, we take advantage of quantified measure of damages for 75,424 buildings to estimate the negative supply shock and of a law issued to allocate reconstruction grants, which resulted in a sharp, exogenous discontinuity in transfers and output behavior across neighboring municipalities to estimate the positive demand shock. Diff-in-diff analysis suggests that local output multipliers of reconstruction grants (net of marginal tax rebates) are below unity. Yet the size of the grants act as a public insurance scheme, preventing a fall in output.

Keywords: Natural disasters, Fiscal multipliers, Mercalli scale

JEL Codes: C36 E62 H70

PDF: http://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe1419.pdf

Open Access Link: https://doi.org/10.17863/CAM.4954