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Fiscal policy and intranational risk-sharing

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  • von Hagen, Jürgen

Abstract

A general feature of national fiscal systems is that they provide buffers against regional fluctuations in output and employment by redistributing income between the different regions of a country. Recent literature in connection with European monetary integration has stressed the insurance aspect of this function: Through the fiscal system, regions obtain insurance against asymmetric shocks. In this paper, we review the literature on risk-sharing through fiscal mechanisms. While consumption smoothing would call for full risk-sharing among regions, moral hazard problems, political economy problems and considerations of macro economic stabilization reduce the optimal degree of risk sharing. This may explain why empirical research generally finds that intranational risk-sharing based on fiscal policy seems rather modest.

Suggested Citation

  • von Hagen, Jürgen, 1998. "Fiscal policy and intranational risk-sharing," ZEI Working Papers B 13-1998, University of Bonn, ZEI - Center for European Integration Studies.
    • Handle: RePEc:zbw:zeiwps:b131998
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    Cited by:

    1. Fidrmuc, Jan & Horvath, Julius & Fidrmuc, Jarko, 1999. "The Stability of Monetary Unions: Lessons from the Breakup of Czechoslovakia," Journal of Comparative Economics, Elsevier, vol. 27(4), pages 753-781, December.
    2. Sanguinetti, Pablo & Tommasi, Mariano, 2004. "Intergovernmental transfers and fiscal behavior insurance versus aggregate discipline," Journal of International Economics, Elsevier, vol. 62(1), pages 149-170, January.
    3. Parsley, David & Popper, Helen, 2019. "GDP Synchronicity and Risk Sharing Channels in a Monetary Union: Blue State and Red States," MPRA Paper 98981, University Library of Munich, Germany.
    4. Wagner, Gary A., 2003. "Are state budget stabilization funds only the illusion of savings?: Evidence from stationary panel data," The Quarterly Review of Economics and Finance, Elsevier, vol. 43(2), pages 213-238.
    5. Andersson, Linda, 2004. "Output Smoothing between Regions in Sweden," Umeå Economic Studies 643, Umeå University, Department of Economics.
    6. David Parsley & Helen Popper, 2021. "Risk Sharing in a Politically Divided Monetary Union," Open Economies Review, Springer, vol. 32(4), pages 649-669, September.
    7. Linda Andersson, 2008. "Fiscal Flows and Financial Markets: To What Extent Do They Provide Risk Sharing within Sweden?," Regional Studies, Taylor & Francis Journals, vol. 42(7), pages 1003-1011.
    8. Davide Furceri, 2009. "Fiscal Convergence, Business Cycle Volatility, and Growth," Review of International Economics, Wiley Blackwell, vol. 17(3), pages 615-630, August.
    9. Saeid Mahdavi, 2010. "Fiscal Stringency and Fiscal Sustainability in the American States: Panel Evidence," Working Papers 0016, College of Business, University of Texas at San Antonio.
    10. Davide Furceri & Aleksandra Zdzienicka, 2015. "The Euro Area Crisis: Need for a Supranational Fiscal Risk Sharing Mechanism?," Open Economies Review, Springer, vol. 26(4), pages 683-710, September.
    11. Filip Ostrihoň & Zlatica Ivaničová, 2015. "Produkčná (ne)homogenita regiónov Slovenska [Production (Non)Homogeneity Across Slovak Regions]," Politická ekonomie, Prague University of Economics and Business, vol. 2015(5), pages 641-657.
    12. Melitz, Jacques & Zumer, Frederic, 2002. "Regional redistribution and stabilization by the center in Canada, France, the UK and the US:: A reassessment and new tests," Journal of Public Economics, Elsevier, vol. 86(2), pages 263-286, November.
    13. Joao L. M. Amador, 2000. "Fiscal federalism in continuous time stochastic economies," Nova SBE Working Paper Series wp383, Universidade Nova de Lisboa, Nova School of Business and Economics.
    14. Büttner, Thiess, 1999. "Regional Stabilization by Fiscal Equalization? Theoretical Considerations and Empirical Evidence from Germany," ZEW Discussion Papers 99-23, ZEW - Leibniz Centre for European Economic Research.

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