Author：Weibo Xing
Date：2011-01-07
Summary：
This paper investigates the regional risk sharing and the amount of shocks smoothed via fiscal transfer and tax-sharing system in China over 1995-2005. In a perfect economy, the households can smooth consumption across regions through various channels and mechanisms in the face of exogenous shocks of income, so that there is no significant fluctuation of households’ disposable income across regions. We use standard consumption smoothing model and Asdrubali et al. (1996)’s risk sharing decomposition method. The empirical results show that: (1) The degree of risk sharing across provinces of China is relatively low; (2) Intra-national risk sharing decreases recent years because of the tax-sharing and transfer payment, i.e., the contemporary fiscal system of China do not smooth provincial income variation highly.
Keywords：Consumption Smoothing, Regional Intra-national Risk Sharing, Tax-Transfer System
