The Relationship Between the Budget Deficit and Current Account Deficit in Turkey

Seyfettin Erdoğan,Durmuş Çağrı Yıldırım

doi:10.5195/emaj.2014.52

Seyfettin Erdoğan, Durmuş Çağrı Yıldırım

Open Access

https://doi.org/10.5195/emaj.2014.52

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Abstract

One of the most debated topics in Economics literature is the relation between budget deficit and current account deficit. The data obtained from the presence of this kind of relation is leading for policy makers in terms of determining the quality of the policy to be preferred and the economic policy to be pursued. In this study, the relation between budget deficit and current account deficit in Turkey is analyzed for 2001Q2-2012Q2 period. According to the data obtained, budget deficit has negative and statistically meaningful effect on current account balance. On the other hand, budget deficit has negative effect on current account balance in short terms.

Highlights

The studies analyzing the relation between budget deficit and current account deficit focus on the validity of Keynesian view and Equivalence Hypothesis
The results show that there is a positive relation between tow deficits and the direction of the causality is from current account towards budget deficit
There are studies from Turkey analyzing the validity of twin deficit hypothesis: Akbostancı and Tunç (2002) tested data from 1987 – 2001 period and conducted research on the relation between budget deficit and foreign trade deficit

Summary

Introduction

The studies analyzing the relation between budget deficit and current account deficit focus on the validity of Keynesian view and Equivalence Hypothesis. In terms of Keynesian view, budget deficit affects current account deficit. There is a causality relation from budget deficit towards current account deficit. Unlike Keynesian view, Ricardian Equivalence Theory supports the idea that there is no relation between budget deficit and current account deficit. There are numerous studies analyzing the direction and presence of the interaction between budget deficit and current account deficit. The relation between budget deficit and current account deficit in Turkey is analyzed for 2001Q2-2012Q2 period. According to the data obtained, budget deficit has negative and statistically meaningful effect on current account balance. Budget deficit has negative effect on current account balance in short terms. There is literature research and in the second section, there is empiric analyze

Literature Research

Results

CONCLUSION