Rethinking the Twin Deficits

Collin Constantine ()

MPRA Paper from University Library of Munich, Germany

Abstract: This article reexamines the thesis that fiscal deficits cause trade deficits and challenges this explanation of the twin deficits with the following propositions. Differences in competitiveness among nations do not lead to balanced trade. Using a Eurozone case study, the article discusses the nexus between competitiveness and the trade balance. Secondly, the author proposes that causality runs from trade deficits to fiscal deficits when the free trade-balanced trade theory is overthrown, and finally, the article overturns the argument that austerity works.

Keywords: twin deficits; competitiveness; free trade; Eurozone; austerity (search for similar items in EconPapers)
JEL-codes: E62 F15 F32 F34 F41 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-int, nep-mac, nep-opm and nep-pke
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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https://mpra.ub.uni-muenchen.de/61229/1/MPRA_paper_58798.pdf revised version (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:58798

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