The role of fiscal transfers in smoothing regional shocks : evidence from existing federations

by Tigran Poghosyan, Abdelhak Senhadji, and Carlo Cottarelli

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

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Year of publication:	July 2016
Authors:	Poghosyan, Tigran ; Senhadji-Semlali, Abdel ; Cottarelli, Carlo
Publisher:	[Washington, D.C.] : International Monetary Fund
Subject:	Finanzausgleich \| Intergovernmental transfers \| Schock \| Shock \| Regionale Konjunktur \| Regional business cycle \| Föderalismus \| Federalism \| USA \| United States \| Kanada \| Canada \| Australien \| Australia