GDP Synchronicity and Risk Sharing Channels in a Monetary Union: Blue State and Red States

Abstract

We examine state GDP comovement and consumption risk-sharing channels within the United States as a whole, and among states whose populations have voted consistently Democrat (Blue) or Republican (Red) in national elections. We document three facts: (1) state GDP growth is asynchronous, and Blue and Red states are particularly out of sync; (2) at the same time, interstate consumption risk-sharing is very high{it is high even across the political divide, and it is high even where the role of fiscal flows is minimal; and (3) the channels of risk sharing across Blue, Red, and Swing states are quite different