An empirical analysis of the nexus between external balance and government budget balance: The case of the GIIPS countries
AbstractThe present study investigates the causality relationship between the external (trade and current account) balance and government budget balance for five countries of the euro area's Mezzogiorno, namely Greece, Ireland, Italy, Portugal, and Spain. These countries, due to their weak economic and financial performances, have been labelled the GIIPS group. The analysis is implemented using two methodologies: the traditional Granger test and the approach developed by Toda–Yamamoto. The results reveal homogeneity in using both approaches and give support to the Ricardian theory, according to which there is no clear nexus between budget-current account balances and budget-trade balances. This implies that fiscal austerity could help the five peripheral countries to conform to the budget deficit criteria as established by the Stability and Growth Pact, but would not be effective in restraining external deficits.
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Bibliographic InfoArticle provided by Elsevier in its journal Economic Systems.
Volume (Year): 37 (2013)
Issue (Month): 2 ()
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More information through EDIRC
Budget deficits; External deficits; Causality tests; GIIPS group;
Find related papers by JEL classification:
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
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