Private and public risk sharing across Italian regions

Abstract

This paper measures the level of total risk sharing across Italian regions and compares the role of private and public risk sharing mechanisms over the period 2000-2016. Our findings suggest that market mechanisms of risk sharing are the main tool to absorb region-specific output shocks: labour mobility and interregional earnings flows absorbed 38 percent of idiosyncratic shocks against 17 percent of interregional fiscal transfers. Overall, risk-sharing channels smooth about 76 percent of region-specific shocks and their role is even stronger during crisis periods.