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Fiscal Policy and the Current Account

  • International Monetary Fund

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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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
Date of revision:
Handle: RePEc:imf:imfwpa:10/121
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