Output Smoothing between Regions in Sweden

Linda Andersson ()
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Linda Andersson: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden

No 643, Umeå Economic Studies from Umeå University, Department of Economics

Abstract: The objective of this paper is to analyze the amount of risk sharing of output that takes place between regions in Sweden. Using the approach by Asdrubali et al. (1996), further developed by Mélitz and Zumer (2002), we find that the capital market is the largest source of risk sharing of gross regional product in Sweden. Still, roughly 12 percent of a change in regional output is smoothed among the regions through the fiscal system. Taking a closer look at the fiscal component, the results suggest that national taxes play a larger role in the smoothing process than transfer payments do. There is also some evidence that there are regional differences in the sense that regions located in the south rely more on the capital market as a source of insurance against shocks in output, while the tax and transfer systems provide a larger extent of risk sharing for regions located in the north.

Keywords: risk sharing; taxes; transfers; intergovernmental relations; capital market (search for similar items in EconPapers)
JEL-codes: E62 H11 H20 H77 R50 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-geo
Date: 2004-11-05

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