The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
Tigran Poghosyan, Abdelhak Senhadji, and Carlo Cottarelli
INTERNATIONAL MONETARY FUND
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.