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Channels of Interstate Risksharing: US 1963-1990

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  • Bent E. Soerensen
  • Pierfederico Asdrubali
  • Oved Yosha

Abstract

We develop a framework for quantifying the amount of risksharing among states in the US, and construct data which allow us to decompose a shock to gross state product into several components. For the period 1963-1990 we find that 40% of shocks to state gross domestic product are smoothed by capital markets, 14% are smoothed by the federal government, and 24% are smoothed by credit markets. The remaining 22% are not smoothed. We decompose the federal government smoothing into sub-categories: taxes, transfers, and grants to states, finding, for example, that in comparision to the tax-transfer system, the magnitude of smoothing through the grant system is small (2.7% of a shock), and that the unemployment insurance system smoothes 1.8% of a shock. Finally, we repeat the analysis for two sub-periods, finding that the amount and composition of federal government smoothing is stable through time. However, we detect an increase in the amount of capital markets smoothing, a sharp decrease in the amount of credit market smoothing, and a decrease in the overall fraction of a shock smoothed.

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Bibliographic Info

Paper provided by Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics in its series EPRU Working Paper Series with number 95-04.

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Handle: RePEc:kud:epruwp:95-04

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Cited by:
  1. Philip Lane, 1998. "International Diversification and the Irish Economy," Economics Technical Papers 9811, Trinity College Dublin, Department of Economics.
  2. S. Bucovetsky, 1997. "Insurance and Incentive Effects of Transfers among Regions: Equity and Efficiency," International Tax and Public Finance, Springer, vol. 4(4), pages 463-483, November.
  3. Jappelli, Tullio & Pagano, Marco, 2008. "Financial market integration under EMU," CFS Working Paper Series 2008/33, Center for Financial Studies (CFS).
  4. Akito Matsumoto & Robert P. Flood & Nancy P. Marion, 2009. "International Risk Sharing During the Globalization Era," IMF Working Papers 09/209, International Monetary Fund.
  5. Ridhwan, M.M. & Nijkamp, P. & Rietveld, P., 2008. "Regional development and monetary policy : a review of the role of monetary unions, capital mobility and locational effects," Serie Research Memoranda 0007, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.

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