Template-Type: ReDIF-Paper 1.0
Author-Name: Parush Arora
Author-Name-First: Parush
Author-Name-Last: Arora
Author-Email: parush.arora@ashoka.edu.in
Author-Workplace-Name: Ashoka University
Author-Name: Yash  Khaitan
Author-Name-First: Yash 
Author-Name-Last: Khaitan
Author-Email: yash.khaitan_ug2023@ashoka.edu.in
Author-Workplace-Name: Ashoka University
Author-Name: Derek  Tran
Author-Name-First: Derek 
Author-Name-Last: Tran
Author-Email: 
Author-Workplace-Name: Upstart Inc.
Title: Do Politics Shape Economic Recovery through Federal Disaster Assistance?
Abstract: This paper investigates the causal impact of FEMA grants and SBA loans on post-disaster economic recovery in U.S. counties over 2003–2021. While natural disasters cause less than 0.1% of annual US GDP, they have significant localized economic impacts, reaching 2% or more in one in twenty affected counties. We find that a $1 increase in disaster aid generates $1.79–$1.98 in local GDP growth in the following year. Our identification strategy relies on an instrument based on county-level political competition (vote margin). For the exogeneity condition, we rely on the winner-take-all electoral system, where presidential outcomes are effectively predetermined at the state level unless the state is a swing state. Thus, in the non-swing states, politicians’ incentive to improve local economic conditions is eliminated. We confirm this by finding a significant effect of political competition on counties’ GDP growth in swing states but an insignificant and near-zero effect for non-swing states. In the first stage of 2SLS, we find the instrument to be relevant as it significantly affects the allocation of aid between counties. Interestingly, we also find that this effect is stronger when the disaster occurs closer to an election (state or federal). Our results suggest that disaster aid is an effective short-run fiscal stimulus with no significant effects beyond one year. Keywords: Fiscal Policy, Natural Disasters, Federal Aid, FEMA, SBA, Economic Recovery JEL Codes: R11, R15, Q54, Q58, H84

length: 36
Creation-Date: 20260406
Revision-Date: 
Publication-Status: 
File-URL:/www/wwwashokaeduin_628/public/dp/RePEc/ash/wpaper/paper162_0.pdf
File-Format: Application/pdf 
Number: 162
Handle: RePEc:ash:wpaper:162