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 S. Senhadji

International Monetary Fund (IMF)

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 S. 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 S. Senhadji

International Monetary Fund (IMF)

700 19th Street, N.W.
Washington, DC 20431
United States

Carlo Cottarelli

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
46
Abstract Views
446
PlumX Metrics