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American Economic Review: Vol. 103 No. 3 (May 2013)

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How Much Would US Style Fiscal Integration Buffer European Unemployment and Income Shocks? (A Comparative Empirical Analysis)

Article Citation

Feyrer, James, and Bruce Sacerdote. 2013. "How Much Would US Style Fiscal Integration Buffer European Unemployment and Income Shocks? (A Comparative Empirical Analysis)." American Economic Review, 103(3): 125-28.

DOI: 10.1257/aer.103.3.125

Abstract

We examine the degree to which federal fiscal integration smoothes income and unemployment shocks across US States. We find that roughly 25 cents of every dollar of income shock at the state level is offset by federal fiscal policy. This stabilization comes entirely through the Federal tax system, not through spending stabilizers, automatic or otherwise. If we apply a comparable amount of cross country stabilization to European Union countries (as exists across US States), Greece and Spain would be receiving additional transfers of 2.5 percent of GDP.

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Authors

Feyrer, James (Dartmouth College)
Sacerdote, Bruce (Dartmouth College)

JEL Classifications

E23: Macroeconomics: Production
E24: Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital
E32: Business Fluctuations; Cycles
E62: Fiscal Policy
G01: Financial Crises


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