Suchergebnisse

We study the channels of interstate risk sharing in Germany for the time period 1970 to 2006 following the methodology of Asdrubali et al. (1996). Their framework allows us to estimate the degree of smoothing of a shock to a state's gross domestic product by factor markets, the government sector, and credit markets, respectively. For the time period from 1970 to 1994 pre-unification Germany we find that about 19 percent of shocks to a state's gross domestic product (GDP) are smoothed by private factor markets, 50 percent are smoothed by the German government sector, and a further 17 percent are smoothed through credit markets. For the post-reunification period, 1995 to 2006, the relative importance of the smoothing channels changes. In the complete sample, factor markets contribute around 50.5 percent to consumption smoothing, and credit markets contribute another 17.5 percent. The government sector's role is diminished: it smoothes around 10 percent of a shock. For this period, we also split our sample between West and East German states. In West Germany, 63 percent of idiosyncratic income shocks are smoothed out by factor markets; and another 15 percent by the government sector. In East Germany, factor markets smooth about 34.5 percent of the volatility in state GDP, the government sector about 19 percent, and another 18 percent are smoothed by credit markets.

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.