No. 8/2002
PUBLIC EMPLOYMENT AND REGIONAL RISK SHARING: NORWAY 1977-90
Lars-Erik Borge
Egil Matsen

Abstract:
We provide an empirical analysis of regional risk sharing in Norway
over the period 1977-90. The approach of Asdrubali, Sørensen
and Yosha (1996) is extended to take account of public employment as a possible shock absorber. The other channels of risk sharing are capital markets & commuting, taxes & transfers and credit markets. Surprisingly, there seems to be full interregional risk sharing in the short run, with public employment absorbing about 20 % of regional shocks to private output. The combined e.ect of capital markets & commuting is even more important, however, absorbing up to 70 % of regional shocks. In the longer run, a significant fraction of regional shocks remain unsmoothed. Government smoothing increases and market based smoothing decreases as shocks become more permanent.