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Empirical Economics

, Volume 43, Issue 2, pp 763–787 | Cite as

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

  • Faruk Balli
  • Syed Abul BasherEmail author
  • Rosmy Jean Louis
Article

Abstract

This article 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.

Keywords

Risk-sharing Pairwise risk-sharing Federal taxes and transfer Panel data Cross-sectional dependence 

JEL Classification

C33 E21 F36 H77 

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Copyright information

© Springer-Verlag 2011

Authors and Affiliations

  • Faruk Balli
    • 1
  • Syed Abul Basher
    • 2
    Email author
  • Rosmy Jean Louis
    • 3
  1. 1.School of Economics and FinanceMassey UniversityPalmerston NorthNew Zealand
  2. 2.Department of Research and Monetary PolicyQatar Central BankDohaQatar
  3. 3.Department of Economics and Finance, Faculty of ManagementVancouver Island UniversityNanaimoCanada

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