The Economic Impact of Hurricane Katrina on Its Victims: Evidence from Individual Tax Returns

Abstract:

Hurricane Katrina destroyed more than 200,000 homes and led to massive economic and physical dislocation. Using a panel of tax return data, we provide one of the first comprehensive analyses of the hurricane’s long-term economic impact on its victims. We find small and mostly transitory impacts of the disaster on wages, employment, and total income, even among the worst affected. Remarkably, within a few years, Katrina victims have higher incomes than controls from similar cities that were unaffected by the storm. Withdrawals from retirement accounts offset some of the temporary fall in wages. Finally, there is a short-run spike in marriage and little impact on either divorce or child bearing. These findings suggest that, at least in developed countries like the United States, dislocation is unlikely to be an important component of the social or economic costs of dramatic negative events, such as natural disasters or climate change.