Channels of risk-sharing among Canadian provinces: 1961–2006

Basher, Syed A. and Balli, Faruk and Louis, Rosmy (2009): Channels of risk-sharing among Canadian provinces: 1961–2006.

Abstract

This paper incorporates recent developments in the literature to quantify the amount of interprovincial risk-sharing in Canada. We find that both capital market and the federal tax-transfer system play an almost equally important role (about 26 percent each) in smoothing shocks to gross provincial product, while only 18 percent of shocks are smoothed by credit markets. The remaining 30 percent are not smoothed. Our results bring to light the critical role that Alberta plays in trading-off credit market smoothing for more capital market risk-sharing to the rest of Canada. Our pairwise risk-sharing analysis has brought up some interesting questions and arguments that are often neglected in discussions of regional risk-sharing. For example, one aspect of the pairwise analysis sheds light on the assessment of the economic effects of Quebec separation.

• Item Type: MPRA Paper
• Language: English
• Keywords: Risk-sharing; pairwise risk-sharing; federal taxes and transfer; panel data; cross-section dependence.
• Subjects: H - Public Economics > H7 - State and Local Government ; Intergovernmental Relations > H77 - Intergovernmental Relations ; Federalism ; Secession; C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C33 - Panel Data Models ; Spatio-temporal Models; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E21 - Consumption ; Saving ; Wealth; F - International Economics > F3 - International Finance > F36 - Financial Aspects of Economic Integration

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