Impact of natural disasters on the income distribution

Abstract

During the last decades, the United States experienced an increase in the number of natural disasters and their destructive capability. Several studies suggest a damaging effect of natural disasters on income. In this paper, I estimate the effects of natural disasters on the entire income distribution using county-level data in the United States. In particular, I determine the income fractions that are affected by natural disasters. The results suggest that in the short-term natural disasters primarily affect middle incomes, thereby leaving income inequality levels unchanged. In addition, the paper examines potential channels that intensify or mitigate the effects, such as unemployment insurance or disaster severity. The findings show that unemployment benefits are an important adaptation tool that reduces the effects of natural disasters. In contrast, the occurrence of multiple and severe disasters aggravate the effects. Finally, the analysis detects heterogeneous effects on incomes by disaster type.