Does Economic Freedom Hedge Against Bad Luck? Evidence from Natural Disasters and Local Housing Price Appreciation

We examine the heterogeneous causal effects of natural disasters on housing price appreciation across 3,072 U.S. counties in all 50 states that vary in their levels of economic freedom. Using a difference-in-differences (DiD) framework and two decades of data, we find that although natural disasters generally dampen housing price appreciation, the decline is significantly smaller and more short-lived in counties with greater economic freedom. These results remain robust to the inclusion of comprehensive county and time fixed effects, alternative model specifications, and multiple robustness checks. Our findings suggest that economic freedom serves as an effective hedge against adverse shocks, such as natural disasters, particularly in the aftermath of severe events and for homes in the lower price range. Further analysis of the subcomponents of economic freedom reveals that government consumption expenditures, insurance and retirement payments, property and other taxes, and union density are the primary drivers of economic freedom’s mitigating effect.