Federal Insurance of the U.S. States: An Empirical Investigation.

We investigate channels of federally provided income insurance for U.S. States, finding that a major part of federal insurance is provided through transfers. We compare the "bang for the buck" of various fiscal institutions, finding that unemployment benefits are dramatically more efficient in providing income insurance than any other fiscal institution. This finding suggests that with an appropriately designed income insurance scheme it may be possible to achieve considerable risk sharing in a future European Monetary Union with a relatively modest budget.