The impact of tropical storms on tax revenue
Preeya Mohan, Eric Strobl
Abstract
Abstract We investigate the vulnerability of tax revenue and its various sources to hurricane damages. To this end, we construct a monthly panel of hurricane losses, tax revenue, and its components, tax rates, and gross domestic product (GDP) for eight Eastern Caribbean countries over 14 years. Panel vector autoregressions (VAR) show that following a hurricane, any effects are generally short term. The cumulative expected loss in total tax revenue is 5.3%. Revenue derived from international trade and transactions and domestic goods and service are the most negatively affected. Countries with higher value added, as well as international trade and transactions tax rates, appear to be able to buffer the negative impact better, whereas higher property taxes amplify the negative impact of damaging hurricanes on this revenue source.