How Flood Damages to Public Infrastructure Affect Municipal Budget Indicators

Abstract

Countries’ economic activity as well as their fiscal position are vulnerable to climate- and weather related extreme events. Existing research shows that effects on GDP may be either positive or negative, while fiscal implications are clearly negative. Current literature focuses on fiscal implications at the national level. Predicted increases in climate- and weather related extreme events, though, are regionally highly variable. Hence, information concerning the regional vulnerability to specific extreme events is a vital input for adaptation policies. To answer this information demand, this article looks at how flood damages to public infrastructure affect four budget figures (current income balance, asset management balance, financial transaction balance, and the annual result), exploring the case of Upper Austrian municipalities. Based on a dynamic model and a sample of 442 municipalities from 2009 to 2014 it is found that damages to public infrastructure have a negative impact on municipalities’ current income balance and their annual result. This indicates a weakening of municipalities’ financial situation. To increase municipalities’ budgetary resilience with regards to public flood damages, municipalities can revert to stricter land use regulation and precautionary measures such as wet- or dry-flood proofing, or to flood insurance.