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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.

Suggested Citation

  • Tuck Cheong TANG, 2014. "Fiscal Deficit, Trade Deficit, and Financial Account Deficit: Triple Deficits Hypothesis with the U.S. Experience," Monash Economics Working Papers 06-14, Monash University, Department of Economics.
  • Handle: RePEc:mos:moswps:2014-06
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    File URL: http://www.buseco.monash.edu.au/eco/research/papers/2014/0614fiscaldeficittang.pdf
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    Cited by:

    1. Yusuf Ekrem Akbas & Fuat Lebe, 2016. "Current Account Deficit, Budget Deficit and Saving Gap: Is the Twin or Triplet Deficit Hypothesis Valid in G7 Countries?," Prague Economic Papers, University of Economics, Prague, vol. 2016(3), pages 271-286.

    More about this item

    Keywords

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

    JEL classification:

    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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