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

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  • Basher, Syed A.
  • Balli, Faruk
  • Louis, Rosmy

Abstract

This paper incorporates recent developments in the literature to quantify the amount of interprovincial risk-sharing in Canada. We find that both capital market and the federal tax-transfer system play an almost equally important role (about 26 percent each) in smoothing shocks to gross provincial product, while only 18 percent of shocks are smoothed by credit markets. The remaining 30 percent 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 to 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.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 17300.

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Date of creation: Aug 2009
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Handle: RePEc:pra:mprapa:17300

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Keywords: Risk-sharing; pairwise risk-sharing; federal taxes and transfer; panel data; cross-section dependence.;

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References

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Cited by:
  1. Guidara, Alaa & Lai, Van Son & Soumaré, Issouf & Tchana Tchana, Fulbert, 2013. "Banks’ Capital Buffer, Risk and Performance in the Canadian Banking System: Impact of Business Cycles and Regulatory Changes," MPRA Paper 44105, University Library of Munich, Germany.
  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?," MPRA Paper 39942, University Library of Munich, Germany.
  3. 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, Faculty of Economics, University of Tokyo CIRJE-F-847, CIRJE, Faculty of Economics, University of Tokyo.
  4. Masayoshi Hayashi, 2013. "On the Decomposition of Regional Stabilization and Redistribution," CIRJE F-Series, CIRJE, Faculty of Economics, University of Tokyo CIRJE-F-910, CIRJE, Faculty of Economics, University of Tokyo.

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