Ricardian equivalence or twin deficits hypothesis? Evidence from Serbia
This study investigates empirically whether higher budget deficits worsen the current account balance in Serbia, which is in line with the twin deficit hypothesis.This prediction is very different from Ricardian equivalence theory, which implies that a decrease in public savings is always...
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| Format: | Article |
| Language: | English |
| Published: |
Faculty of Economics, Belgrade
2023-01-01
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| Series: | Ekonomski Anali |
| Subjects: | |
| Online Access: | https://doiserbia.nb.rs/img/doi/0013-3264/2023/0013-32642338087R.pdf |
| _version_ | 1797393749819523072 |
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| author | Rašković Jelena |
| author_facet | Rašković Jelena |
| author_sort | Rašković Jelena |
| collection | DOAJ |
| description | This study investigates empirically whether higher budget deficits worsen the
current account balance in Serbia, which is in line with the twin deficit
hypothesis.This prediction is very different from Ricardian equivalence
theory, which implies that a decrease in public savings is always
anticipated via increased private savings. Hence, budget deficits have no
impact on the current account balance. Based on quarterly data for the
period between 2005 and 2020 and using a multivariate vector autoregression
(VAR) model and a short-run structural VAR model, this paper confirms the
twin deficit hypothesis in Serbia. More precisely, a 1 percentage point
increase in the budget deficit (as a percentage of GDP) generates a 0.31
percentage point increase in the current account deficit (as a percentage of
GDP). Moreover, the result is also confirmed using alternative estimation
techniques (GMM and OLS method). According to these results, macroeconomic
policymakers in Serbia should resort to policies that encourage fiscal
consolidation to rectify or at least mitigate deterioration of the current
account balance. |
| first_indexed | 2024-03-09T00:07:23Z |
| format | Article |
| id | doaj.art-a3a05daf718947e5b4a37fb10fd6f182 |
| institution | Directory Open Access Journal |
| issn | 0013-3264 1820-7375 |
| language | English |
| last_indexed | 2024-03-09T00:07:23Z |
| publishDate | 2023-01-01 |
| publisher | Faculty of Economics, Belgrade |
| record_format | Article |
| series | Ekonomski Anali |
| spelling | doaj.art-a3a05daf718947e5b4a37fb10fd6f1822023-12-12T13:06:55ZengFaculty of Economics, BelgradeEkonomski Anali0013-32641820-73752023-01-01682388711310.2298/EKA2338087R0013-32642338087RRicardian equivalence or twin deficits hypothesis? Evidence from SerbiaRašković Jelena0https://orcid.org/0000-0001-8154-0161University of Belgrade, Faculty of Economics and BusinessThis study investigates empirically whether higher budget deficits worsen the current account balance in Serbia, which is in line with the twin deficit hypothesis.This prediction is very different from Ricardian equivalence theory, which implies that a decrease in public savings is always anticipated via increased private savings. Hence, budget deficits have no impact on the current account balance. Based on quarterly data for the period between 2005 and 2020 and using a multivariate vector autoregression (VAR) model and a short-run structural VAR model, this paper confirms the twin deficit hypothesis in Serbia. More precisely, a 1 percentage point increase in the budget deficit (as a percentage of GDP) generates a 0.31 percentage point increase in the current account deficit (as a percentage of GDP). Moreover, the result is also confirmed using alternative estimation techniques (GMM and OLS method). According to these results, macroeconomic policymakers in Serbia should resort to policies that encourage fiscal consolidation to rectify or at least mitigate deterioration of the current account balance.https://doiserbia.nb.rs/img/doi/0013-3264/2023/0013-32642338087R.pdftwin deficits hypothesisricardian equivalencebudget balancecurrent account balanceshort-run structural var |
| spellingShingle | Rašković Jelena Ricardian equivalence or twin deficits hypothesis? Evidence from Serbia Ekonomski Anali twin deficits hypothesis ricardian equivalence budget balance current account balance short-run structural var |
| title | Ricardian equivalence or twin deficits hypothesis? Evidence from Serbia |
| title_full | Ricardian equivalence or twin deficits hypothesis? Evidence from Serbia |
| title_fullStr | Ricardian equivalence or twin deficits hypothesis? Evidence from Serbia |
| title_full_unstemmed | Ricardian equivalence or twin deficits hypothesis? Evidence from Serbia |
| title_short | Ricardian equivalence or twin deficits hypothesis? Evidence from Serbia |
| title_sort | ricardian equivalence or twin deficits hypothesis evidence from serbia |
| topic | twin deficits hypothesis ricardian equivalence budget balance current account balance short-run structural var |
| url | https://doiserbia.nb.rs/img/doi/0013-3264/2023/0013-32642338087R.pdf |
| work_keys_str_mv | AT raskovicjelena ricardianequivalenceortwindeficitshypothesisevidencefromserbia |