Skip to: search, navigation, or content.


Indiana University Bloomington

BEPP

The Kelley Advantage

The department is home to the authors of Managerial Economics and Business Strategy and Games and Information: An Introduction to Game Theory, two of the nation’s leading textbooks in the field.

Research and Publications

Working Papers

Interstate Risk Sharing in Germany: 1970-2006

2010

Jürgen von Hagen, Ralf Hepp

Abstract

We study the channels of interstate risk sharing in Germany for the time period 1970 to 2006, estimating the degrees of smoothing of a shock to a state's gross domestic product by factor markets, the government sector, and credit markets, respectively. Within the government sector, we pay special attention to Germany's fiscal equalization mechanism. For pre-unification Germany, we find that about 19 percent of a shock 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 has changed. Factor markets contribute around 50.5 percent to consumption smoothing. The government sector's role is diminished: it smoothes around 10 percent of a shock. Fiscal equalization only plays a very small role for consumption smoothing in Germany.

Citation

Ralf Hepp & Jürgen von Hagen, 2010. "Interstate Risk Sharing in Germany: 1970-2006", Working papers 2010-13, University of Connecticut, Department of Economics.

Keywords

Regional Risk-sharing, FactorMarkets, Consumption Smoothing, Fiscal Federalism