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Fiscal Policy and the Current Account

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

No 7859, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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 auto-regressions, 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: current account; exchange rate; external imbalances; fiscal policy (search for similar items in EconPapers)
JEL-codes: C01 C40 E60 E61 E62 E65 (search for similar items in EconPapers)
Date: 2010-06
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Journal Article: Fiscal Policy and the Current Account (2011) Downloads
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