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Channels of Interstate Risksharing: U.S. 1963-1990

  • Asdrubali, P.
  • Sorensen, B.E.
  • Yosha, O.

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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Paper provided by Tel Aviv in its series Papers with number 07-95.

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Length: 28 pages
Date of creation: 1995
Date of revision:
Handle: RePEc:fth:teavfo:07-95
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