Poghosyan, Tigran, Senhadji, Abdelhak, Cottarelli, Carlo, (2016), ” The Role of Fiscal Transfers in Smoothing Regional Shocks: Evidence from Existing Federations“, ESM Working Paper Series, July 2016
We assess the extent to which fiscal transfers smooth regional shocks in three large federations: the US, Canada and Australia. We find that fiscal transfers offset 4-11 percent of idiosyncratic shocks (risk-sharing) and 13-24 percent of permanent shocks (redistribution). This fiscal insurance largely operates through automatic stabilizers embedded in a central budget primarily through federal taxes and transfers to individuals, rather than transfers from the central government to state budgets. These results have implications for the design of fiscal risk-sharing mechanisms in the euro area.
Relevant Posts
- Sandri, Damiano, (2015), “Dealing with Systemic Sovereign Debt Crises: Fiscal Consolidation, Bail-ins or Official Transfers?”, IMF Working Paper, WP/15/223, 16 October
- Andrésa, Javier, Boscáb, José E., Ferric, Javier, (2016), “Instruments, rules, and household debt: the effects of fiscal policy”, Oxford Economic Papers, 4 February