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Title: Fiscal Policy and the Current Account

Author(s): S.M. Ali Abbas, Jacques Bouhga-Hagbe, Antonio Fatás, Paolo Mauro and Ricardo C. Velloso

Publication Date: June 2010

Keyword(s): current account, exchange rate, external imbalances and fiscal policy

Programme Area(s): International Macroeconomics

Abstract: 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 auto-regressions, 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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Bibliographic Reference

Ali Abbas, S, Bouhga-Hagbe, J, Fatás, A, Mauro, P and Velloso, R. 2010. 'Fiscal Policy and the Current Account'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=7859