Vortrag
Tax Transfer Payments after Natural Disaster: A Diff-in-Diff Analysis of the 2002 Elbe Flood and Its Impact on Municipal Finances in Saxony

Verena Grass


Taxation in a Global Economy : 71st Annual Conference of the International Institute of Public Finance (IIPF 2015)
Dublin, Irland, 20.08.2015 - 23.08.2015



Abstract:
This paper explores the financial effectiveness of tax transfer payments after an unforeseeable natural destruction on the regions budget. The example is chosen from the 2002 flood in Saxony and damages in the municipalities. It was debated whether the flood relief fund was sufficient or even over compensating. We analyze what has changed in the debt level of the municipalities and calculate the effect of the relief fund and its financial aid. To address this question an extensive panel dataset over the years 1998 to 2009 with detailed figures about tax transfers is investigated. Using a difference in difference approach to structure the risk of indebtedness, we find that the common trend does not continue after the flood. Finding suggests the relief fund was also used to decrease the debt in the region. The results are robust to various tests with subgroups of the sample and propensity score matching.

Abstract

This paper explores the financial effectiveness of tax transfer payments after an unforeseeable natural destruction on the regions budget. The example is chosen from the 2002 flood in Saxony and damages in the municipalities. It was debated whether the flood relief fund was sufficient or even over compensating. We analyze what has changed in the debt level of the municipalities and calculate the effect of the relief fund and its financial aid. To address this question an extensive panel dataset over the years 1998 to 2009 with detailed figures about tax transfers is investigated. Using a difference in difference approach to structure the risk of indebtedness, we find that the common trend does not continue after the flood. Finding suggests the relief fund was also used to decrease the debt in the region. The results are robust to various tests with subgroups of the sample and propensity score matching.



JEL-Classification: C33;C93;H62;H72
Keywords: Saxony, Flood, Public debt, Municipalities, Public Finance, Tax transfers
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