CHANNELS OF INTERSTATE RISK SHARING - UNITED-STATES 1963-1990

We develop a framework for quantifying the amount of risk sharing amon g states in the United States, and construct data that allow us to dec ompose the cross-sectional variance in gross state product into severa l components which we refer to as levels of smoothing. We find that 39 percent of shocks to gross state product are smoothed by capital mark ets, 13 percent are smoothed by the federal government, and 23 percent are smoothed by credit markets. The remaining 25 percent are not smoo thed. We also decompose the federal government smoothing into subcateg ories: taxes, transfers, and grants to states.