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

35 Pages Posted: 9 Dec 2016

See all articles by Tigran Poghosyan

Tigran Poghosyan

International Monetary Fund (IMF)

Abdelhak Senhadji

International Monetary Fund (IMF) - Asia and Pacific Department

Carlo Cottarelli

International Monetary Fund (IMF)

Multiple version iconThere are 2 versions of this paper

Date Written: July 2016

Abstract

We assess the extent to which fiscal transfers smooth regional shocks in three large federations:the U.S., 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: Fiscal stabilization, United States, Canada, Australia, Fiscal risk, Regional shocks, Stabilization measures, Fiscal policy, public debt cycles, credit cycles, asset price cycles, duration analysis

JEL Classification: E60, C40, H60

Suggested Citation

Poghosyan, Tigran and Senhadji, Abdelhak and Cottarelli, Carlo, The Role of Fiscal Transfers in Smoothing Regional Shocks: Evidence from Existing Federations (July 2016). IMF Working Paper No. 16/141. Available at SSRN: https://ssrn.com/abstract=2882576

Tigran Poghosyan (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Abdelhak Senhadji

International Monetary Fund (IMF) - Asia and Pacific Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Carlo Cottarelli

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
57
rank
268,254
Abstract Views
197
PlumX Metrics