Elsevier

Ecological Economics

Volume 63, Issues 2–3, 1 August 2007, Pages 285-298
Ecological Economics

Taxes, subsidies, and insurance as drivers of United States coastal development

https://doi.org/10.1016/j.ecolecon.2006.09.019Get rights and content

Abstract

Ever-increasing coastal populations in the United States and worldwide are putting growing quantities of people and property at risk due to coastal disasters. At the same time, poorly-planned development policies and practices erode the natural capital of coastal regions, eliminating existing landscape protection from intense wind and waves. Government tax, subsidy, and insurance policies can encourage or discourage particular forms of development. In the U.S., there is no consistent set of incentives or disincentives for coastal development, and many programs have ambiguous or contradictory goals. Federal programs are highly fragmented, being administered by a variety of government agencies. State and local governments can also implement policies to improve coastal disaster protection, but often fail to do so. In other cases state and local policies designed for local economic growth work against the goals of federal policy, increasing flood damage risk while relying on federal aid once disaster does strike. These programs frequently lead to perverse subsidies, where economically inefficient policies degrade natural capital and foster economic inequality. In this study, we evaluate the existing tax, subsidy, and insurance structures that led to coastal development patterns on the U.S. Gulf Coast over the last sixty years, and propose alternative policies that could create a more sustainable, just, economically efficient, and storm-adaptive region.

Section snippets

The general role of taxes, subsidies, and insurance in coastal development

Government intervention in the market, particularly through taxes, subsidies, and insurance, plays a major role in influencing development patterns worldwide, and especially in the United States. When used inappropriately, these measures can distort true costs and incentives for particular economic sectors while degrading economic, social, and environmental well-being; however, they can also be designed in a manner that enhances economic, social, and environmental quality.

Land and property tax

Insurance, disaster relief, and mitigation

A broad spectrum of federal programs, along with state and local ordinances, provide tax and subsidy incentives that may encourage or discourage different development patterns. While a full evaluation of these programs is beyond the scope of this paper, we briefly describe relevant programs in 2 Insurance, disaster relief, and mitigation, 3 Effects of other taxes and subsidies on coastal development. We first consider the National Flood Insurance Program, a particularly important component of

State-level subsidies to industry

Although most subsidy literature focuses on federal programs, which are generally easier to quantify than state or local subsidies, Louisiana does subsidize its industrial and energy sectors at an extraordinarily high rate. Templet (1995) found Louisiana to have the highest per capita rate of perverse subsidies of all 50 states, at a level almost twice as high as the next state (Fig. 2). His subsidy calculation included a composite of tax, energy, and pollution subsidies that provided economic

Initial planning for post-Katrina reconstruction

Tax, subsidy, and insurance reform issues have all been part of the proposed reconstruction plans discussed following Katrina. Initial proposals by the Bush administration included a “Gulf opportunity zone”, providing tax incentives to businesses relocating in storm-damaged areas and “Urban homesteading” to provide low-income residents with federally-owned land to rebuild housing. These proposals made some provision to address the income distribution gaps that Katrina revealed (providing

Conclusion

Inconsistencies in data reporting make it impossible to obtain a total dollar value for the various subsidies to coastal development, especially for coastal Louisiana. Put in light of the estimated $200 billion reconstruction bill for Hurricane Katrina, there is clear value in reconsidering the current system of taxes, subsidies, and insurance in high-risk coastal zones. Katrina highlighted problems with current U.S. coastal policy–one that encourages an unending cycle of risky development and

Acknowledgements

We thank Melissa Bailey, Joshua Farley, Brian Miles, Brian Voigt, and one anonymous referee for valuable review comments on earlier versions of this manuscript.

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