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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

Suggested Citation

  • Hepp, Ralf & von Hagen, Jürgen, 2011. "Interstate Risk Sharing in Germany:1970-2006," CEPR Discussion Papers 8593, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:8593
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    References listed on IDEAS

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    More about this item

    Keywords

    consumption smoothing; factor markets; fiscal federalism; regional risk sharing;

    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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