Open Economies Review

, Volume 28, Issue 4, pp 661–684 | Cite as

Government Size, Trade Openness, and Output Volatility: A Case of fully Integrated Economies

  • Eiji FujiiEmail author
Research Article


Government is often considered the safe sector of an open economy that provides households with insurance against external risk exposure. Among highly integrated economies, however, households should be able to exploit common financial markets to insure themselves. In this paper we examine the relationship between government size, trade openness, and output volatility across fully integrated economies using Japan’s regional income accounting and public finance data. The contributions of the government- and market-based insurances to inter-regional risk sharing are also estimated. The empirical results reveal some unique aspects of the state-market interactions under full economic integration with vertical fiscal imbalance.


Government size Output volatility Risk-sharing Trade openness Vertical fiscal imbalance 

JEL Classifications

F36 F40 H10 H70 



The author thanks three anonymous referees of this journal for helpful comments. All remaining errors are solely of the author’s. This research was supported by JSPS KAKENHI Grant Number 25285087.


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Copyright information

© Springer Science+Business Media New York 2017

Authors and Affiliations

  1. 1.School of EconomicsKwansei Gakuin UniversityNishinomiyaJapan
  2. 2.Center for Economic Studies & Ifo InstituteMunichGermany

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