CEDE Seminar - Oscar Becerra

In this paper, we analyze the effect of natural disasters on municipal fiscal outcomes. Unlike national governments, municipalities operate under distinct fiscal frameworks with limited local revenues and dependency on earmarked transfers. By analyzing the universe of Colombian municipalities, we identify a systemic pattern in which institutional rigidities inhibit fiscal adjustments. Using an event-study approach with data from 2000 to 2023, we find no statistically significant effect of disasters on fiscal outcomes, even in municipalities with high levels of preventive investment. These results, robust to alternative severity measures, suggest that rigid institutional setups prevent municipalities from adjusting their finances in response to disasters.