Regional Risk Sharing Among Swedish Municipalities
Sammanfattning: We use panel data to analyse long-run and short-run risk sharing among Swedish municipalities in terms of municipal-level personal incomes during the period 2000-2018 and local government finances during 2005-2018. We find that long-run redistribution of personal incomes amounts to 44 percent and short-run stabilisation to 39 percent. In terms of municipal finances, we find a degree of risk sharing between 70 and 100 percent, depending on the definition of municipal disposable income. Moreover, the degree of risk sharing of personal incomes has decreased during the period, while risk sharing of municipal finances has remained stable. Further, the degree of risk sharing is decomposed into various components, and we find that risk sharing of personal incomes is mainly driven by benefits systems, while local government risk sharing is driven primarily by the income equalisation system. We further separate municipalities into four groups, and find that both the total degree of risk sharing and its main components vary significantly between large cities and other types of municipalities. In conclusion, we find that the degree of regional risk sharing in Sweden is high compared to previous studies of other countries.
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