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Fiscal Policy and the Current Account

International Monetary Fund
Authors registered in the RePEc Author Service: Antonio Fatas (), S. M. Ali Abbas () and Paolo Mauro ()

No 10/121, IMF Working Papers from International Monetary Fund

Abstract: This paper examines the relationship between fiscal policy and the current account, drawing on a larger country sample than in previous studies and using panel regressions, vector autoregressions, and an analysis of large fiscal and external adjustments. On average, a strengthening in the fiscal balance by 1 percentage point of GDP is associated with a current account improvement of 0.2–0.3 percentage point of GDP. This association is as strong in emerging and low-income countries as it is in advanced economies; and significantly higher when output is above potential.

Keywords: Economic models; Exchange rates; Oil exporting countries; Nonoil developing countries; Taxation; fiscal policy, external imbalances, current account, exchange rate, fiscal balance, government spending, budget balance (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba and nep-opm
Date: 2010-05-01
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Journal Article: Fiscal Policy and the Current Account (2011) Downloads
Working Paper: Fiscal Policy and the Current Account (2010) Downloads
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Handle: RePEc:imf:imfwpa:10/121