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