Polls, Politics and Disaster Relief: Evidence from Federal SBA Loan programs

Abstract

We study how the popularity of an incumbent president can influence the generosity of the relief effort in response to a natural disaster as reflected in the federal SBA loan program. We document that the loan amounts relative to reported damages are higher when popularity of the incumbent president is lower. This result is consistent with the catering view of disaster relief where the president approves higher amounts when his popularity is at a low point but may hold his ground when his popularity is high. We find that this catering behavior is amplified when public sentiment regarding the disaster is high (as measured by a metric designed from Google search volume).When the public sentiment is very high even a popular president may approve high disaster aid, further supporting our catering view. We also examine the effect of other factors that increase the political importance of the disaster (e.g., swing county, campaign donations, first term, and number of presidential visits) and find evidence of increased catering. Finally, there is some evidence of interaction of catering with credit scoring rules, suggesting discrimination in loan provision in favor of richer counties and against counties with a high percentage of African Americans. Our findings point to a new venue for politics in climate change in the area of disaster relief.