RT Generic
T1 Incomplete interregional risk sharing with complete markets
A1 Celentani, Marco
A1 Conde-Ruiz, J. Ignacio
A1 Desmet, Klaus
A2 Centre for Economic Policy Research, 
AB We analyze risk sharing and fiscal spending in a two-region model with complete markets. Fiscal policy is determined by majority voting. When policy setting is decentralized, regions choose pro-cyclical fiscal spending in an attempt to manipulate securities prices to their benefit. This leads to incomplete risk sharing, despite the existence of complete markets and the absence of aggregate risk. When a fiscal union centralizes fiscal policy, securities prices can no longer be manipulated and complete risk sharing ensues. If regions are homogeneous, median income residents of both regions prefer the fiscal union. If they are heterogeneous, the median resident of the rich region prefers the decentralized setting
YR 2002
FD 2002-02
LK https://hdl.handle.net/10016/14393
UL https://hdl.handle.net/10016/14393
LA eng
NO Marco Celentani acknowledges the financial support of MCYT (Spain) under project PB98-00024. José-Ignacio Conde-Ruiz acknowledges the financial support of MECD (Spain) under project EX200l-02885993E. Klaus Desmet acknowledges the financial support of the Commission for Cultural Educational and Scienlific Exchange betweenthe United States of America and Spain (Project 7-42) and the Comunidad de Madrid (Project 06/O064/2000).
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RD 17 jul. 2024