EconPapers    
Economics at your fingertips  
 

Are “twin deficits” asymmetric? Evidence on government budget and current account balances, 1870–2013

Georgios Karras

International Economics, 2019, vol. 158, issue C, 12-24

Abstract: Using data from seventeen countries over the period 1870–2013, we first find that there is robust empirical support for the “twin deficits” hypothesis: under the assumption of symmetry, a change in the budget deficit by 1% of GDP causes the current account balance to move in the opposite direction by a maximum of about 0.25% of GDP, an effect that is found to be persistent but temporary. To relax symmetry, the current account is next allowed to respond differently to positive and negative budget shocks. The findings suggest that the full time period is adequately described by symmetry: the current account effects of fiscal expansions are not statistically different from those of fiscal consolidations. The postwar period, however, appears to be decidedly asymmetric: negative shocks to the budget deficit are associated with sizable improvements in the current account, while positive shocks have no statistically significant effect. Policy implications outline a clear but limited role for fiscal policy in influencing the current account.

Keywords: Twin deficits; Budget deficit; Current account (search for similar items in EconPapers)
JEL-codes: E62 F41 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S2110701718302543
Full text for ScienceDirect subscribers only

Related works:
Journal Article: Are “twin deficits” asymmetric? Evidence on government budget and current account balances, 1870–2013 (2019) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:inteco:v:158:y:2019:i:c:p:12-24

DOI: 10.1016/j.inteco.2019.02.001

Access Statistics for this article

International Economics is currently edited by Valerie Mignon and Marcelo Olarreaga

More articles in International Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

 
Page updated 2025-03-19
Handle: RePEc:eee:inteco:v:158:y:2019:i:c:p:12-24