“TWINS” OR JUST “SIBLINGS”?BUDGET AND CURRENT ACCOUNT DEFICITS IN EUROPE, 1870-2013

Georgios Karras

Applied Econometrics and International Development, 2019, vol. 19, issue 1, 33-42

Abstract: Using data for twelve European countries over the period 1870-2013, the response of the current account balance to the budget deficit is found to be inverse-hump-shaped: an increase in the budget deficit results in a current account deterioration that is sizeable but less than one-to-one (so the two balances are “siblings” rather than “twins”), and persistent but temporary. Specifically, an increase in the fiscal deficit by 1% of GDP results in deterioration of the current account that peaks at about 0.25% of GDP but dies out after a maximum of ten years.

Keywords: Twin Deficits; Budget Deficit; Current Account; Europe; 20th century history. (search for similar items in EconPapers)
JEL-codes: E62 F41 (search for similar items in EconPapers)
Date: 2019
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