[show abstract][hide abstract] ABSTRACT: The purpose of this article is to verify if taxes and transfers serve as a regional insurance scheme in Brazil. These automatic stabilizers would redistribute resources from regions experiencing increases in income to regions experiencing income falls. They would provide, therefore, a form of insurance against income fluctuations, which might be important if individuals' access to financial markets is more limited, or costly, than the government's. For the period 1994-1999 we conclude, using data from the 26 States plus the Distrito Federal, that taxes and transfers mitigate the effects of regional income shocks. A 1% increase in a State's per capita income implies a 1.6% increase in federal taxes, on average. On the other hand, a 1% increase in a State's per capita income triggers a 0.86% decrease in transfers, on average. However, it is important to observe that the system absorbs most effectively the shocks on the richest States, especially the Distrito Federal.