The limits to the transfer of risk to government

The trend today is to call on the government to make ever riskier investment s (in the industries of the future, innovation) and to insure against ever more risk (companies’ debt and equity financing, risk of a fall in household income, risk of corporate bankruptcy, government guarantee s for some types of savings, financial assets, etc.). This raises the important question of the limits to the transfer of risk to the government. One may think that: The government is more capable than other economic agents of transferring income over time by borrowing . The government can therefore manage large-scale cyclical risks; But the situation is different when it comes to permanent, non-cyclical risks (innovation, new industries, corporate equity, savings products): if the government incurs significant losses in taking these risks, it will have to refinance itself by hiking taxes, thus passing the risk back to the private sector. The issue of transferring risk to the government is therefore very different when it comes to cyclical and non-cyclical risks.