Changes in inter‐provincial risk sharing during the COVID‐19 pandemic in China

Abstract The stringent measures imposed by the Chinese government to deal with COVID restricted labor mobility across the country, impairing the major mechanism for consumption smoothing in China. This paper explores the composition of risk sharing between Chinese provinces before and during the pandemic. Our results indicate that the share of income shocks smoothed by the factor market exhibits a drastic drop, illustrating the adverse effects of lockdowns and other barriers to labor mobility. By contrast, risk sharing via fiscal mechanisms becomes much more prominent but around 37% of income shocks during the pandemic remain unsmoothed.