Long-Run Net Distributionary Effects of Federal Disaster Insurance: The Case of Hurricane Katrina
64 Pages Posted: 15 Feb 2017 Last revised: 13 Nov 2019
Date Written: 2019
Federal disaster insurance–in the form of national flood insurance, the Federal Emergency Management Agency (FEMA), and other programs–is designed to nationally-distribute large geography-specific shocks like earthquakes and hurricanes. This study examines the local long-run distributionary effects of Hurricane Katrina and the subsequent policy response on impacted residents. Using a unique fifteen-year panel of five percent of adult Americans’ credit reports, we find persistently-higher rates of insolvency and lower homeownership among inundated residents of New Orleans ten years after the storm, relative to their non-flooded neighbors. Residents of mostly-white and mostly-black neighborhoods are similarly-impacted in the short and long run, though residents of white neighborhoods are more likely to migrate out of the city. However, residents of the large Gulf Opportunity (GO) Zone surrounding New Orleans, who were also eligible for various federal programs, obtained net financial benefits in the years following Katrina; a decade later, those residents have higher rates of consumption and homeownership, are more likely to have paid off their mortgages, and have lower rates of bankruptcy and foreclosure than residents outside the GO Zone. These net subsidies are found to be progressive—favoring young and low-income residents of the counties surrounding New Orleans—and are broadly similar across black and white neighborhoods.
Keywords: disaster insurance, household finances, homeownership, migration
JEL Classification: H84, I38, Q54
Suggested Citation: Suggested Citation