Subnational Fiscal Impacts of Extreme Cyclone Exposure: Evidence from the Philippines

What is the subnational fiscal impact of natural disasters in the Philippines? Using meteorological data, I reconstruct the extreme exposure of tropical cyclones for each province in the Philippines during 2001-2021. I exploit random within-province year-to-year variation in cyclone strikes with a dynamic two-way fixed effect panel model to identify the causal effect of environmental disasters on local fiscal dynamics. Also, this paper examines different post-disaster fiscal responses for governments of different levels. The major findings are: (1) wind exposure generally induces a drop in government spending (for all levels of governments) and an increase in deficit (for the provincial-level), despite showing some nonlinearity under extremely high wind velocity. (2) There is a persistent significant negative impact of storm exposure on tax revenue, with lower level governments may suffer more. (3) An increase in storm exposure reduces the provincial-level investment activities.