EconPapers    
Economics at your fingertips  
 

Fiscal Policy and the Current Account

S. M. Abbas (), Jacques Bouhga-Hagbe, Antonio Fatas (), Paolo Mauro () and Ricardo C Velloso

IMF Economic Review, 2011, vol. 59, issue 4, 603-629

Abstract: This paper examines the relationship between fiscal policy and the current account, drawing on a large sample of advanced, emerging, and low-income economies and using a variety of statistical methods: panel regressions, an analysis of large fiscal policy and current account changes, and panel vector autoregressions (VAR). On average, across estimation methods, a strengthening in the fiscal balance by 1 percentage point of GDP is associated with a current account improvement of about 0.3 percentage point of GDP. With our preferred estimation method (quarterly structural VAR using government consumption to identify fiscal policy shocks), the relationship is stronger, in the 0.3–0.5 range. The association is stronger in emerging markets and low-income countries; in economies that are more open to trade; and when the economy is somewhat overheated to begin with. The effect is, however, notably weaker during episodes of large fiscal policy and current account changes, suggesting that fiscal policy may have a more limited role in correcting large external imbalances.

Date: 2011
References: Add references at CitEc
Citations: View citations in EconPapers (26) Track citations by RSS feed

Downloads: (external link)
http://www.palgrave-journals.com/imfer/journal/v59/n4/pdf/imfer201122a.pdf Link to full text PDF (application/pdf)
http://www.palgrave-journals.com/imfer/journal/v59/n4/full/imfer201122a.html Link to full text HTML (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Fiscal Policy and the Current Account (2010) Downloads
Working Paper: Fiscal Policy and the Current Account (2010) 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:pal:imfecr:v:59:y:2011:i:4:p:603-629

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/41308/PS2

Access Statistics for this article

More articles in IMF Economic Review from Palgrave Macmillan, International Monetary Fund
Bibliographic data for series maintained by Sonal Shukla ().

 
Page updated 2019-04-16
Handle: RePEc:pal:imfecr:v:59:y:2011:i:4:p:603-629