primary studies and find that natural disasters have a significant negative effect on growth per capita, particularly strong for climatic disasters in developing countries. Felbermayr and Groeschl (2014) propose a new panel dataset and find robust adverse nonlinear effects on economic activity. On the other hand, Skidmore and Toya (2002) and Cuaresma et al. (2008) find an expansionary effect attributable to a productivity boost from new investments and technologies.

Research on how climate change affects the fiscal sector is relatively scarce. Most studies draw on the publicly available cross-country database on disaster losses called Emergency Events Database (EM-DAT). Lis and Nickel (2009) explore the implications of climate change for fiscal policy by assessing the impact of large-scale extreme weather events on changes in public budgets and conclude that the budgetary impact of such events ranges between 0.23 and 1.1 percent of GDP depending on the country group. Melecky and Raddatz (2011) examine the economic and fiscal consequences of a natural disaster for middle and high-income countries over the period 1975 through 2008. They divide the disasters into geological, climate, and a residual category, and find that on average budget deficits increase only after climate disasters, whereas for lower-middle-income countries, the increase in deficits is widespread across all events. Gerling (2017), however, finds that after weather-related disasters government primary balances remain surprisingly stable in a sample of 19 countries in Developing Asia from 1970 to 2015.

Koetsier (2017) applies a panel synthetic control method to compare the difference in government debt between the disaster countries and their respective control groups. His dataset comprises 163 countries for the period between 1971 and 2014 and finds a considerable increase in government debt for the most damaging and deadliest disasters. Government debt, on average, increases by 11.3 percent of GDP compared to the synthetic control group, with a median effect of 6.8 percent of GDP. Feyen et al. (2020) consider a large sample of countries and conclude that the debt of the general government is 2.4 percent of GDP higher one year after the disaster. Additionally, sovereign ratings are lower two years later for countries that faced extreme weather events, consistent with the significant rise of the public debt level after one year.

Other studies look at the effects on alternative indicators of public finance soundness. Cevik and Jalles (2020a) find that vulnerability and resilience to climate change have a significant impact on the government borrowing cost. They show that countries with greater vulnerability to risks associated with climate change have higher bond yields and spreads. Additionally, they find that climate change vulnerability and resilience have significant effects on the probability of sovereign debt default (Cevik and Jalles, 2020b) and sovereign credit ratings. The adverse effect is amplified in the case of developing countries owing to their weaker capacity to adapt to the consequences of climate change (Cevik and Jalles, 2020c). Klomp (2017) empirical analysis also indicates that large-scale natural disasters considerably increase the onset probability of a sovereign debt default by about three percentage points, with particularly widespread damage by major earthquakes 3