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Interstate Risk Sharing in Germany:1970-2006

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  • Hepp, Ralf
  • von Hagen, Jürgen

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 percent of a shock is smoothed by private factor markets, 50 percent is smoothed by the German government sector, and a further 17 percent is smoothed through credit markets. For the postunification period, 1995 to 2006, the relative importance of the smoothing channels has changed. Factor markets contribute around 50.5 percent to consumption smoothing. The government sector’s role is diminished, but still economically significant: it smoothes around 10 percent of a shock

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8593.

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Date of creation: Oct 2011
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Handle: RePEc:cpr:ceprdp:8593
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Keywords: consumption smoothing; factor markets; fiscal federalism; regional risk sharing;

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Find related papers by JEL classification:
  • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
  • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
  • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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Cited by:

  1. Buch, Claudia M. & Körner, Tobias & Weigert, Benjamin, 2014. "Towards deeper financial integration in Europe: What the Banking Union can contribute," Working Papers 02/2013 [rev.], German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung.
  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. Jan Fidrmuc, 2013. "Political Economy of Fiscal Unions," CEDI Discussion Paper Series 13-06, Centre for Economic Development and Institutions(CEDI), Brunel University.
  4. Claudia M. Buch, 2012. "From the Stability Pact to ESM - What next?," IAW Discussion Papers 85, Institut für Angewandte Wirtschaftsforschung (IAW).
  5. 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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