The Role of Fiscal Transfers in Smoothing Regional Shocks: Evidence from Existing Federations

Tigran Poghosyan, Abdelhak Senhadji and Carlo Cottarelli

Working Papers from European Stability Mechanism

Abstract: This paper assesses 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.

Keywords: public debt cycles; credit cycles; asset price cycles; duration analysis (search for similar items in EconPapers)
JEL-codes: C4 E6 H6 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2016-07-29
New Economics Papers: this item is included in nep-mac and nep-ure
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Citations: View citations in EconPapers (10)

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Working Paper: The Role of Fiscal Transfers in Smoothing Regional Shocks: Evidence from Existing Federations (2016)
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