Working Paper: CEPR ID: DP697
Authors: Jacques Melitz; Silvia Vori
Abstract: We examine proposals to introduce in the European Community national insurance against unevenly distributed shocks. This would operate differently from tax and government spending activities that now yield regional insurance within countries, since the latter are mainly designed for other purposes such as income redistribution and general revenue-raising. According to our evidence, the appeal of such insurance is very limited because the risks are too highly correlated and there is an excessive chance that a country in difficulty would not receive aid. The costs of a continuing programme are likely to exceed the benefits.
Keywords: Fiscal Federalism; Regional Insurance; European Monetary Union
JEL Codes: F41; F42; H77
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| introduction of a national insurance scheme (H55) | regional economic stability (R11) |
| high covariance of national income shocks (F40) | diminished benefits of the insurance scheme (G52) |
| highly correlated nature of risks (C10) | undermines potential for a successful insurance scheme (G22) |