Budget deficit and national savings: theoretical approach

Marco Flávio Resende

Brazilian Journal of Political Economy, 2009, vol. 29, issue 1, 24-42

Abstract: A consensus has not yet emerged about the relationship between budget deficit, external deficit and national saving. According to mainstream economic literature the budget deficit can cause an insufficiency of national saving for a given investment rate. In this case, the investment rate will not be reduced if foreign saving is absorbed, causing an external deficit. In general, the mechanisms through which budget deficits could cause current account deficits are not highlighted in the works about this theme. We arrive at the conclusion that there is not a systematic relationship between budget deficit, current account deficit and national saving and that when it happens it can be processed only through changes in the real exchange rate. JEL Classification : E21; E22; E62; F30; F41.

Keywords: Budget deficit; current account; national saving; real exchange rate (search for similar items in EconPapers)
Date: 2009
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