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Do Democracies Have Higher Current Account Deficits?

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  • Adam, Antonis
  • Tsarsitalidou, Sofia

Abstract

In this paper we argue that democracies tend to run (larger)current account deficits than autocracies. Our argument is based on the different incentives faced by democratic and autocratic leaders. The main theoretical hypothesis are tested on a dataset that consists of 121 countries over the period 1980-2012, using five year averages and a fixed effects panel data model. The empirical findings suggest that autocracies run lower current account deficits than democracies. Special focus is given in the issue of endogeneity by estimating an IV Fixed Effects model, using as instruments of Democracy the share of Christian adherents in each country and also the level of democracy in neighboring countries. These results are found to be robust across alternative empirical specifications.

Suggested Citation

  • Adam, Antonis & Tsarsitalidou, Sofia, 2017. "Do Democracies Have Higher Current Account Deficits?," MPRA Paper 76400, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:76400
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    More about this item

    Keywords

    Current Account; Democracy; Αutocracy;

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government

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