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Ricardian Equivalence, Twin Deficits, and the Feldstein-Horioka puzzle in Egypt

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  • Carlos Marinheiro

    (GEMF and Faculdade de Economia, Universidade de Coimbra)

Abstract

Egypt has presented important budget imbalances. This paper tries to evaluate whether Egypt’s public deficit has had any impact on current account imbalances, examining the validity of the twin deficit hypothesis for Egypt. We conclude for the presence of a (weak) long-run relationship between the budget deficit and the current account deficit. Yet, we reject the twin-deficit hypothesis: we found evidence in favour of a reverse Granger-causality running from the external deficit to the budget deficit. Further, we conclude against the validity of full Ricardian equivalence in Egypt and present evidence in favour of a high degree of capital mobility.

Suggested Citation

  • Carlos Marinheiro, 2006. "Ricardian Equivalence, Twin Deficits, and the Feldstein-Horioka puzzle in Egypt," GEMF Working Papers 2006-07, GEMF, Faculty of Economics, University of Coimbra.
    • Handle: RePEc:gmf:wpaper:2006-07
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    More about this item

    Keywords

    Twin deficits; current account deficit; Feldstein-Horioka puzzle; Egypt; Fiscal policy;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

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