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Business Cycle Divergence and Risk Sharing: Blue States and Red States
1 : Santa Clara University
2 : Vanderbilt University
* : Corresponding author
We examine business cycle divergence and risk sharing within the United States as a whole and in U.S. `regions' whose populations have consistently voted either Democrat (Blue) or Republican (Red) in national elections. We find that business cycle divergence across the states is larger than across international borders; and, it is starkest--and growing--across Blue and Red regions. The risk sharing mechanisms, including fiscal transfers and migration, also differ markedly across the political regions. However, allowing for additional sharing mechanisms unobserved in previous work, we find that overall risk sharing is high, even across the political divide.
