Government emergency budgeting and disaster impact: Evidence from China

Abstract Emergency budgets have become indispensable fiscal tools for governments around the world to cope with disasters, but how governments determine the size of emergency budgets and to what extent such budgets are effective remain unclear. Drawing on organizational learning theory and using data collected from 30 provinces in China, we conduct a series of panel regression analysis and robustness checks to investigate the determinants and impact of emergency budgets. We find that both prior disaster experience and government fiscal ability as measured by budget surplus are positively related to the size of subnational governments' emergency budgets, but the interaction effect between the two is negative. Moreover, while emergency budgets can help maintain the level of government budget surplus, they only play a limited role in moderating the negative impact of disaster damage on governments' fiscal ability. In particular, this study reveals the importance of socioeconomic environment and organizational capacity for the decision‐making process and outcomes of emergency budgets, suggesting that subnational governments should always adopt a holistic approach and improve their financial preparedness for future emergencies by incorporating more information from past disasters and considering diverse drivers of the complex dynamics among emergency budgets, disaster experience, and government fiscal ability.