Objective
As shown in the literature on optimum currency areas, one fundamental aspect of inter regional redistribution -- brought about by fiscal federalism -- is its risksharing component. I have proved that public risksharing is important not only for consumption smoothing, but also for long run growth in the entire integrated area. My research will study the effect of risksharing on regional and overall growth in 3 papers. First, an empirical analysis of risksharing channels in the European Union that allows to quantify the amount of risksharing through security markets, through federal redistribution and through credit markets. Second, a model of a large, heterogeneous economy, where the risks to be shared are associated not only to labour income but also to interest rate income. In this framework, movements of interest rates may reverse the positive effects of public risksharing on growth by reducing precautionary savings. Third, an analysis of the conditions under which public risksharing across two regions generates convergence. It appears that it is possible for public risksharing to enhance convergence while not reducing the growth rate of the richer region. But the model will also exhibit the possibility of multiple equilibria --- i.e. equilibria where polarization (dualism) will emerge. It appears clear then why Spain represents an interesting case study. This country has experienced an acceleration in growth in concurrence with a larger fiscal autonomy to the single regions. It will be very important to understand whether a higher decentralization has coincided with greater regional uncertainty, and if so, whether an increase in precautionary savings has driven up investment anyway.
Call for proposal
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54006 Thessaloniki
Greece