Government exposure, financing needs and current and future vulnerabilities

Abstract

Climate hazards affect public expenditures and revenues in multiple ways and across different levels of government. Following a disaster, revenues can fall due to declining economic activity while, at the same time, expenditures increase due to immediate relief needs and longer-term recovery costs. This chapter provides a deeper understanding of government exposure and the impact of climate hazards on public finances in terms of climate-related fiscal risks, while underlining the difficulties in identifying the full costs borne by public finances. It discusses the role of private insurance coverage of losses and damages from climate hazards across different countries, highlighting the linkage between higher insurance coverage and lower demands for social protection and government compensation. It then discusses the integration of climate change in fiscal risk assessment, including in fiscal forecasting and reporting, across OECD countries.