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22 - Enhancing Private and Public Risk Sharing

Lessons from the Literature and Reflections on the COVID-19 Crisis

from Part III - The Economic and Fiscal Dimensions

Published online by Cambridge University Press:  28 September 2023

By
Jacopo Cimadomo ,
Esther Gordo Mora  and
Alessandra Anna Palazzo
Edited by
Dariusz Adamski ,
Fabian Amtenbrink  and
Jakob de Haan
Dariusz Adamski
Affiliation:
University of Wroclaw
Fabian Amtenbrink
Affiliation:
Erasmus Universiteit Rotterdam
Jakob de Haan
Affiliation:
University of Groningen
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Summary

The chapter surveys the literature on consumption risk sharing, focusing on the findings for the euro area and for the United States, but also presenting evidence for other countries. The literature examined found that risk sharing is higher in more mature federations, such as the United States, than in the euro area. The studies surveyed suggest that state/country-specific output shocks are primarily smoothed out through the capital and credit channel, whereas the fiscal channel as a minor role, especially in the euro area. Overall, about 70 per cent of shocks are smoothed in the United States while the figure is just 40 per cent in the euro area. At the same time, analysis of the response to the COVID-19 crisis indicates that risk sharing in the euro area has been more resilient than it was during the Global Financial Crisis of 2008–9. Overall, the results point to the need for further improvements to the private and public risk-sharing channels in the euro area to ensure more effective cushioning against asymmetric shocks and to boost progress towards the completion of European Monetary Union.

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Chapter
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The Cambridge Handbook of European Monetary, Economic and Financial Integration , pp. 397 - 418
Publisher: Cambridge University Press
Print publication year: 2023

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