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

  • Balli, Faruk
  • Basher, Syed Abul
  • Jean Louis, Rosmy

This paper incorporates recent developments in the literature to quantify the amount of interprovincial risk-sharing in Canada. We find that 29% of shocks to gross provincial product are smoothed by capital markets, 27% are smoothed by the federal tax-transfer systems, and about 24% are smoothed by credit markets. The remaining 20% 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 with 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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File URL: http://mpra.ub.uni-muenchen.de/30876/1/MPRA_paper_30876.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 30876.

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Date of creation: 12 May 2011
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Handle: RePEc:pra:mprapa:30876
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