With climate change seemingly increasing the frequency of natural disasters in the form of extreme weather events, governments will increasingly need to consider whether their disaster recovery needs are better met through taxation or deficit funding, according to an article on Project Syndicate.
After the 2011 disaster in Japan, a proposal was raised by economists Motoshige Ito and Takatoshi Ito that the recovery from the disaster should be funded by the raising of taxes, rather than the issuing of debt by governments, which was endorsed by many economists.
In contrast, Koichi Hamada, Professor Emeritus at Yale University, argues instead recovery from such natural disasters should instead be funded by temporary increases in deficits, reasoning that tax increases at such a time would be equivalent to the imposition of austerity measures during a recession, risking extending the time for recovery. Instead, Hamada reasons the temporary nature of disaster recovery should allow it to be treated like a recession, where fiscal consolidation can wait until the economy is in a better state.
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