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

Balli, Faruk and Basher, Syed Abul and Jean Louis, Rosmy (2011): 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 29% of shocks to gross provincial product are smoothed by capital markets, 27% are smoothed by the federal tax-transfer systems, and about 24% are smoothed by credit markets. The remaining 20% 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 with 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-sectional 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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