Based on the real background that severe earthquakes easily cause fierce volatility of public budget, this paper draws lessons from internationally generally employed insurance mechanism instead of fiscal subsidies and constructs the accumulative model for the earthquake recovery payment burden of government budget through the historical data of earthquakes in China. Then, it stimulates the accumulative earthquake recovery payment burden level for China's public budget between 2014 and 2020 under different insurance amounts, and tests the smoothing role of insurance in public budget's volatility. It comes to the conclusion that government purchase of insurance can effectively smooth the volatility risk of the earthquake recovery payment burden of public budget, and the volatility risk is reverse to the insurance coverage. Assuming 98% confidence interval and 10% payment ratio, 10 billion RMB coverage of earthquake insurance can lower the upper and lower intervals of the earthquake recovery payment burden of public budget by 0.8% and 1.2% respectively; while 100 billion RMB coverage of earthquake insurance can nearly eliminate the volatility of the earthquake recovery payment burden of public budget. This paper shows that the establishment of catastrophe insurance institution can improve the stability of the economy, and help the governments to optimize the disaster management, increase the disaster relief efficiency and develop a market-oriented disaster insurance system in China.
Public Budget's Volatility Risk and Insurance Apportionment Mechanism: Taking Earthquake Disaster Relief as an Example
Journal of Finance and Economics Vol. 42, Issue 05, pp. 28 - 42 (2016) DOI:10.16538/j.cnki.jfe.2016.05.003
Cite this article
Xu Xian, Zhang Hanbo, Chen Zhuomiao. Public Budget's Volatility Risk and Insurance Apportionment Mechanism: Taking Earthquake Disaster Relief as an Example[J]. Journal of Finance and Economics, 2016, 42(5): 28–42.
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