In this paper, we quantify negative household welfare impacts caused by the 2004 Indian Ocean tsunami using a unique household panel data set collected in Tamil Nadu, India. We estimate the consumption Euler equation using the distance of each household's residence from the coastal line as an identifying instrumental variable for damages caused by the tsunami. According to the estimation results, income shocks did not affect consumption of credit unconstrained households, but asset shocks such as human and fishing boat damages significantly decreased household consumption. These findings suggest that while expansion of credit access may not necessarily be effective against disasters, interest rate subsidies contingent on the degree of asset damages could be useful as an ex post policy intervention.
