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

Author/Editor:

Tigran Poghosyan ; Abdelhak S Senhadji ; Carlo Cottarelli

Publication Date:

July 21, 2016

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 2016/141

Subject:

Disposable income Fiscal federalism Fiscal policy Fiscal transfers National accounts Personal income

English

Publication Date:

July 21, 2016

ISBN/ISSN:

9781498379601/1018-5941

Stock No:

WPIEA2016141

Pages:

34

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