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Risk-sharing within Brazil and South America

Author

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  • Eduardo Silva

    (University of Kent)

  • Alex Ferreira

    (Universidade de São Paulo)

Abstract

Our findings suggest that risk-sharing is 24.6% higher within Brazilian federal states than between a sample of South American countries. This “border effect” occurs irrespective of the geographical distance between regions which, in turn, decreases risk-sharing (by 2.3% per thousand kilometers). We report that the variance of state disposable income is between 73.1 and 78.5% lower than the variance of gross state product in Brazil. Our results show that fiscal federalism promotes risk-sharing by reducing the volatility of disposable income. The tax-transfers system is progressive as income persistently flows from rich to poorer Brazilian states. We conclude that the benefits from increasing international integration within South America will be higher than in the intranational case.

Suggested Citation

  • Eduardo Silva & Alex Ferreira, 2023. "Risk-sharing within Brazil and South America," Empirical Economics, Springer, vol. 65(2), pages 661-695, August.
    • Handle: RePEc:spr:empeco:v:65:y:2023:i:2:d:10.1007_s00181-022-02350-1
    DOI: 10.1007/s00181-022-02350-1
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    More about this item

    Keywords

    Risk-sharing; Fiscal federalism; Regional macroeconomics; Border effect;
    All these keywords.

    JEL classification:

    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies
    • R5 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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