Do Natural Disasters Affect Household Saving?: Evidence From the August 2002 Flood in Germany

Abstract

Recently, there is a growing interest in understanding how individuals adapt to changing climate conditions and climate-induced extreme weather events. An underexplored question is whether and how climate-related natural hazards affect household saving behavior. For this purpose, we exploit a natural experiment stemming from the European Flood of August 2002. Combining micro data with geo-coded flood maps allows us to analyze the causal impact of flood exposure on household savings within a differences-in-differences setting. We find that flood exposure depresses household saving behavior in the medium run. The most likely explanation is moral hazard induced by massive government support for affected households.