The public finance response to floods of local governments in Italy.

This paper aims to empirically test the dynamics of budget outcomes of Italian municipalities in the aftermath of floods by accounting for heterogeneous levels of resilience and vulnerability to natural disasters. Our findings are based on a dynamic difference-in-differences model after propensity score matching. They point to substantial impacts in terms of increased capital expenditure and revenues from transfers, which depend on the degree of resilience and vulnerability. Through our analysis, we account for multiple aspects of risk to support policy decisions related to both ex-ante and ex-post disaster occurrence management. • Dynamics of budget outcomes of Italian municipalities in the aftermath of floods. • Italian municipalities react to floods by increasing capital investments. • Results greatly depend on the degree of resilience and vulnerability of municipalities. • More resilient and less vulnerable municipalities better use available resources. • Less resilient and more vulnerable municipalities highly depend on transfers. [ABSTRACT FROM AUTHOR]