We use the methodology of Kalemli-Ozcan, Sorensen, and Yosha (2003) to calculate the degree of insurance among Japanese prefectures. Prefectural-level data for the fiscal years 1975 to 1999 are used to analyze the impact of idiosyncratic shocks to regional income. The results indicate that about 20% of idiosyncratic shocks to regional income are absorbed by interregional income insurance through the capital market, about 10% is absorbed by the national government through the interregional tax transfer system, and about 60% is absorbed as a result of changes in saving and dissaving.
Keywords: regional shocks, risk sharing.
Views expressed in the paper are those of the authors and do not necessarily reflect those of the Bank of Japan or Institute for Monetary and Economic Studies.