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Income volatility, labor mobility, and fiscal policy in Russian regions

Income volatility, labor mobility, and fiscal policy in Russian regions. Goohoon Kwon Antonio Spilimbergo IMF IMF, CEPR, WDI. Outline. Brief Description of Regions (GDP. Income shocks. Welfare. Integration) Tale of three adjustments Consequence for Unemployment

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Income volatility, labor mobility, and fiscal policy in Russian regions

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  1. Income volatility, labor mobility, and fiscal policy in Russian regions Goohoon Kwon Antonio Spilimbergo IMF IMF, CEPR, WDI

  2. Outline • Brief Description of Regions (GDP. Income shocks. Welfare. Integration) • Tale of three adjustments • Consequence for Unemployment • Source of regional volatility • Fiscal Response to oil shocks • Transfers • Conclusions

  3. Data • Russia (89 regions) • US (50 states + DC) • China (30 provinces) • Canada (11 provinces) • Europe 15 (178 regions)

  4. Regional Income Differences

  5. Regional Income Shocks

  6. Regional shocks (controlling for regional trends)

  7. Why are Russia regions subject to large idiosyncratic shocks? • Natural Resources are concentrated in few regions • Soviet faith in economy to scale has created “excessive” specialization

  8. How to measure shocks? • Oil shock = (oil price) * (size energy sector) • Industrial shock = rer * (size manufacturing sector)

  9. Table 1. Regional growth and regional shocks Fixed effects Arellano-Bond oil shock 1.64*** industrial shock -0.11** Lag D.gdpgrowth -0.04 D.oil shock 2.28 *** D.industrial shock -0.23*** Constant 2.85 1.98*** Number of samples 760 608 Number of Regions 76 76 ** p<.05; *** p<.01 Source of Shocks

  10. Tale of three adjustments How do economies react to regional shocks? Do people stay in distressed areas or do they move? To answer this question we need to make an econometric detour

  11. (Small) Econometric Detour

  12. Income Shocks: response of Income

  13. Income Shocks: response of population

  14. Consequence on Regional Unemployment

  15. Adjustment - American Style • Flexible Labor and housing markets. • Limited unemployment benefits. • Labor is highly mobile. • Variation in regional unemployment is limited.

  16. Adjustment – European Style • Rigid labor and housing markets • Unemployment subsidies. • Regional fiscal transfers. • Scarce labor mobility. • Large variation in regional unemployment. • Persistency in regional unemployment.

  17. Adjustment – Russian style • Large shocks • Scarce labor mobility • Rigid housing market (housing subsidies) • Fiscal transfers not necessarily targeted to compensate shocks

  18. Adjustment – Latin American style • Large shocks • Small role for fiscal policy (procyclical) • Population concentrates in large cities (Argentina, Chile, Uruguay among the highest urban concentration)

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