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

35 Pages Posted: 4 Aug 2017

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

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

JEL Classification: E6; C4; H6

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). European Stability Mechanism Working Paper No. 18. Available at SSRN: https://ssrn.com/abstract=3013125 or http://dx.doi.org/10.2139/ssrn.3013125

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
38
Abstract Views
186
PlumX Metrics