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Fiscal Policy and the Current Account

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  • International Monetary Fund

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 autoregressions, 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.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 10/121.

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Length: 30
Date of creation: 01 May 2010
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Handle: RePEc:imf:imfwpa:10/121

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Keywords: Economic models; Exchange rates; Nonoil developing countries; Oil exporting countries; Taxation; current account; fiscal policy; fiscal balance; government spending; budget balance; government budget; fiscal expansions; current account balance; budget deficit; fiscal expansion; fiscal contractions; budget deficits; fiscal balances; current account balances; government budget deficit; tax policy; fiscal deficits; fiscal contraction; aggregate demand; fiscal shocks; public debt; government budget balance; current account deficits; fiscal consolidation; account deficits; expansionary fiscal; fiscal tightening; tax increases; public spending; current account deficit; fiscal policies; budget surplus; foreign debt; current accounts; fiscal deficit; fiscal stance; expansionary fiscal contractions; fiscal shock; fiscal affairs; tax cut; public finances; fiscal affairs department; fiscal adjustments; fiscal impetus; fiscal adjustment; budget balances; government deficit; fiscal years; fiscal revenues; government debt; foreign currency debt; government solvency; external debt; central bank; tax base; fiscal policy action; tax changes; structural fiscal; reserve bank; government spending shocks; fiscal solvency; tax cuts; domestic savings; fiscal stimulus; domestic absorption; fiscal ? stance; debt relief; fiscal variables; primary budget balance; fiscal profligacy; debt problems; currency debt; foreign aid; tax revenues; budget support; balance of payments;

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