Risk-sharing within Brazil and South America

Eduardo Silva () and Alex Ferreira
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Eduardo Silva: University of Kent

Empirical Economics, 2023, vol. 65, issue 2, No 4, 695 pages

Abstract: Abstract Our findings suggest that risk-sharing is 24.6% higher within Brazilian federal states than between a sample of South American countries. This “border effect” occurs irrespective of the geographical distance between regions which, in turn, decreases risk-sharing (by 2.3% per thousand kilometers). We report that the variance of state disposable income is between 73.1 and 78.5% lower than the variance of gross state product in Brazil. Our results show that fiscal federalism promotes risk-sharing by reducing the volatility of disposable income. The tax-transfers system is progressive as income persistently flows from rich to poorer Brazilian states. We conclude that the benefits from increasing international integration within South America will be higher than in the intranational case.

Keywords: Risk-sharing; Fiscal federalism; Regional macroeconomics; Border effect (search for similar items in EconPapers)
JEL-codes: F40 H77 R13 R5 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s00181-022-02350-1

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