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Interstate risk sharing in Germany: 1970--2006

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  • Ralf Hepp
  • Jürgen von Hagen

Abstract

We study the channels of interstate risk sharing in Germany for the time period 1970 to 2006, estimating the degrees of smoothing of a shock to a state's gross domestic product by factor markets, the government sector, and credit markets, respectively. Within the government sector, we pay special attention to Germany's fiscal equalization mechanism. For pre-unification Germany, we find that about 19% of a shock is smoothed by private factor markets, 50% is smoothed by the German government sector, and a further 17% is smoothed through credit markets. For the post-unification period, 1995 to 2006, the relative importance of the smoothing channels has changed. Factor markets contribute around 50.5% to consumption smoothing. The government sector's role is diminished, but still economically significant: it smoothes around 10% of a shock. Copyright 2013 Oxford University Press 2012 All rights reserved, Oxford University Press.

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Bibliographic Info

Article provided by Oxford University Press in its journal Oxford Economic Papers.

Volume (Year): 65 (2013)
Issue (Month): 1 (January)
Pages: 1-24

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Handle: RePEc:oup:oxecpp:v:65:y:2013:i:1:p:1-24

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Cited by:
  1. Jan Fidrmuc, 2013. "Political Economy of Fiscal Unions," CEDI Discussion Paper Series 13-06, Centre for Economic Development and Institutions(CEDI), Brunel University.
  2. Masayoshi Hayashi, 2013. "On the Decomposition of Regional Stabilization and Redistribution," CIRJE F-Series CIRJE-F-910, CIRJE, Faculty of Economics, University of Tokyo.
  3. Claudia M. Buch, 2012. "From the Stability Pact to ESM - What next?," IAW Discussion Papers 85, Institut für Angewandte Wirtschaftsforschung (IAW).
  4. Davide Furceri & Aleksandra Zdzienicka, 2013. "The Euro Area Crisis: Need for a Supranational Fiscal Risk Sharing Mechanism?," IMF Working Papers 13/198, International Monetary Fund.

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