Resilience in the Face of Natural Hazards: How Social Quality Shapes Government Financial Behaviors

Abstract

This study investigates (1) whether natural hazards lead to financial shocks that compel local governments to incur additional public expenditures to address the direct and indirect damages of the hazardous events, and (2) whether a community’s social quality moderates such association between natural hazards and financial outcomes reducing or amplifying hazard-induced government spending. Utilizing the framework of social quality, which encompasses social vulnerability and social capital, we predict the cost of extreme events as a function of community attributes, highlighting the complexity of different social and structural community conditions. We construct panel data from all US counties for fiscal years 2006–2019, employing a fixed effects model with first-difference stationary data to examine the impact of natural hazards on public finances and how it would be diverse conditional on the community context. In highly vulnerable counties, hazard damage generally increases local government spending, but higher social capital helps mitigate these additional costs; however, social capital is also associated with increased spending on long-term investments, such as hospital and housing services, where vulnerable populations have been underserved, potentially promoting fiscal equity. Therefore, it is important to identify and support socially vulnerable populations, particularly those lacking social capital, to better prepare for future natural hazards. Our study highlights the nuanced role of social capital in the fiscal responses of local governments to natural hazards. It reveals that while social capital typically reduces immediate hazard-related expenditures in vulnerable communities, it simultaneously encourages investments in long-term infrastructure. This duality suggests that social capital can influence fiscal equity during hazard responses by balancing short-term cost reductions with strategic long-term spending. Policymakers should consider strengthening community networks and partnerships with local nonprofits and the private sector to harness social capital effectively, ultimately aiming to mitigate social vulnerability to hazards. By doing so, communities may improve their resilience and financial stability, better preparing for future hazards.