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Fiscal Deficit, Trade Deficit, and Financial Account Deficit: Triple Deficits Hypothesis with the U.S. Experience

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  • Tuck Cheong TANG

Abstract

By extending the well-known twin deficits hypothesis, this study proposes a new testable hypothesis - "triple deficits hypothesis" from the general equilibrium perspective, which considers the third deficit of capital and financial account of balance of payment. An empirical l framework is conceptually developed from income-expenditure approach for cointegration. Positive finding is confirmed by the U.S. data that fiscal balance, current account balance, and capital and financial account balance are moving together in the long-run, or to say that they are cointegrated. It is also interesting this study finds that current account does Granger-cause fiscal balance, as well as the U.S. financial account position. This study has relevant policy implications, in particularly the country is with twin deficits phenomenon. This seminal work is still preliminary, and a few of suggestions have been outlined for further study.

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File URL: http://www.buseco.monash.edu.au/eco/research/papers/2014/0614fiscaldeficittang.pdf
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Bibliographic Info

Paper provided by Monash University, Department of Economics in its series Monash Economics Working Papers with number 06-14.

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Length: 13 pages
Date of creation: Apr 2014
Date of revision:
Handle: RePEc:mos:moswps:2014-06

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Keywords: Capital and financial account; Budget deficit; Current account balance; Twin deficits;

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