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Channels of risk-sharing among Canadian provinces: 1961–2006

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  • Faruk Balli

    ()

  • Syed Basher

    ()

  • Rosmy Jean Louis

    ()

Abstract

This article incorporates recent developments in the literature to quantify the amount of interprovincial risk-sharing in Canada. We find that 29% of shocks to gross provincial product are smoothed by capital markets, 27% are smoothed by the federal tax-transfer systems, and about 24% are smoothed by credit markets. The remaining 20% are not smoothed. Our results bring to light the critical role that Alberta plays in trading-off credit market smoothing for more capital market risk-sharing with the rest of Canada. Our pairwise risk-sharing analysis has brought up some interesting questions and arguments that are often neglected in discussions of regional risk-sharing. For example, one aspect of the pairwise analysis sheds light on the assessment of the economic effects of Quebec separation. Copyright Springer-Verlag 2012

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Bibliographic Info

Article provided by Springer in its journal Empirical Economics.

Volume (Year): 43 (2012)
Issue (Month): 2 (October)
Pages: 763-787

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Handle: RePEc:spr:empeco:v:43:y:2012:i:2:p:763-787

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Keywords: Risk-sharing; Pairwise risk-sharing; Federal taxes and transfer; Panel data; Cross-sectional dependence; C33; E21; F36; H77;

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Cited by:
  1. Guidara, Alaa & Lai, Van Son & Soumaré, Issouf & Tchana, Fulbert Tchana, 2013. "Banks’ capital buffer, risk and performance in the Canadian banking system: Impact of business cycles and regulatory changes," Journal of Banking & Finance, Elsevier, vol. 37(9), pages 3373-3387.
  2. Jean Louis, Rosmy & Brown, Ryan & Balli, Faruk, 2011. "On the feasibility of monetary union: Does it make sense to look for shocks symmetry across countries when none of the countries constitutes an optimum currency area?," Economic Modelling, Elsevier, vol. 28(6), pages 2701-2718.
  3. Masayoshi Hayashi, 2013. "On the Decomposition of Regional Stabilization and Redistribution," CIRJE F-Series CIRJE-F-910, CIRJE, Faculty of Economics, University of Tokyo.
  4. Masayoshi Hayashi, 2012. "Channels of Stabilization in a System of Local Public Health Insurance: The Case of the National Health Insurance in Japan," CIRJE F-Series CIRJE-F-847, CIRJE, Faculty of Economics, University of Tokyo.

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