Handbook of Multilevel Finance
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Handbook of Multilevel Finance

Edited by Ehtisham Ahmad and Giorgio Brosio

This Handbook explores and explains new developments in the “second generation” theory of public finance, in which benevolent rulers and governments have been replaced by personally motivated politicians and the associated institutions. Following a comprehensive introduction by the editors, the renowned contributors present fresh and original perspectives on the key multi-level issues, along with recent developments in theory and practice, as they relate to taxes, budget systems, the management of liabilities and macroeconomic stability. The book also explores special issues concerning the poor and marginalized, structural change and the environment, natural disasters, and the task of overcoming conflicts whilst keeping countries together.
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Chapter 22: Decentralization and natural disasters

Timothy J. Goodspeed


Natural disasters, such as floods, droughts, hurricanes, tornadoes, earthquakes, wildfires, tidal waves, and so forth have devastating effects on communities. The effects can be localized or spread across wide geographic areas. Private insurance is often available for homeowners, but governments also provide insurance in the form of disaster relief and invest in infrastructure to mitigate damages and loss of life from disasters. A national government is in a natural position to provide insurance across subnational regions: it can pool risks. However, decentralized governments are often in a better position to know what infrastructure investments are needed in a locality. There is thus a natural interplay between national and subnational governments in the ex ante planning and investment in infrastructure, and ex post clean-up and financial assistance after a disaster occurs. Issues of planning, ex ante investment and ex post clean-up of natural disasters are becoming more important. Figure 22.1 indicates the worldwide rise in estimated damage from natural disasters from 1975 to 2010. Many of these expensive natural disasters have taken place where governments are decentralized. Figure 22.2 shows the world distribution of the highest risk places in terms of economic loss for various types of natural disasters. One interesting fact to be noted from this figure is the degree to which economic losses occur in federal countries. Another is the variation in type and severity of disasters across the regions of federal countries.

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