Badinger, Harald, Fichet de Clairfontaine, Aurélien, Reuter, Wolf Heinrich. 2017. Fiscal rules and twin deficits: the link between fiscal and external balances. World Economy 40 (1), 21-35.
BibTeX
Abstract
This paper investigates the relationship between countries' fiscal balances and current accounts with an emphasis on the role of fiscal rules. The direct effect of fiscal policy on the current account via aggregate (import) demand is potentially amplified by indirect effects, materialising through interest rate effects and intergenerational transfers that reduce savings. On the other hand, the implied positive relation between fiscal and external balances is potentially attenuated by offsetting changes in savings through Ricardian equivalence considerations. We expect this attenuation effect to be stronger in countries with more stringent fiscal rules and test this hypothesis using a panel of 73 countries over the period 1985–2012. As with previous studies, we find a positive effect of fiscal balances on the current account, supporting the twin deficit hypothesis. However, the effect of fiscal balances on the current account depends on the stringency of fiscal (budget balance or debt) rules in place; it is reduced by one-third on average and virtually eliminated for countries with the most stringent fiscal rules.
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Status of publication | Published |
---|---|
Affiliation | WU |
Type of publication | Journal article |
Journal | World Economy |
Citation Index | SSCI |
WU-Journal-Rating new | FIN-A, VW-C |
Language | English |
Title | Fiscal rules and twin deficits: the link between fiscal and external balances. |
Volume | 40 |
Number | 1 |
Year | 2017 |
Page from | 21 |
Page to | 35 |
Reviewed? | Y |
URL | http://onlinelibrary.wiley.com/doi/10.1111/twec.12427 |
DOI | http://dx.doi.org/10.1111/twec.12427 |
Associations
- People
- Badinger, Harald (Details)
- Fichet de Clairfontaine, Aurélien (Former researcher)
- Reuter, Wolf Heinrich (Former researcher)
- Organization
- Department of Economics (Badinger) (Details)
- Research Institute for European Affairs FI (Details)
- Research areas (ÖSTAT Classification 'Statistik Austria')
- 5115 European integration (Details)
- 5323 Econometrics (Details)
- 5335 Political economic theory (Details)
- 5344 Foreign trade (Details)
- 5371 Macroeconomics (Details)