Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/236735 
Year of Publication: 
2021
Series/Report no.: 
EconPol Working Paper No. 68
Publisher: 
ifo Institute - Leibniz Institute for Economic Research at the University of Munich, Munich
Abstract: 
We study the relationship between the government budget balance and the current account balance for Portugal, using quarterly data from 1999 to 2019. On the one hand, the causality tests find a unidirectional relation running from the current account balance to the government budget balance. On the other hand, IV estimations show a bi-directional relationship between these variables, and the existence of a bilateral relationship between the structural components of both balances. Even so, the policy implication is that the use of fiscal policy to correct the external imbalance, especially in an economic crisis, is not substantial, due to the small size of the estimated impact. In addition, with an ARDL model, we find a negative long run relationship between the share of public consumption on GDP and the current account balance. As expected, the variation of real public consumption produces an adverse accumulated response on the current account balance. Finally, the investment rate negatively affects the cyclical component of the current account balance and contributes to the structural improvement of the budget balance.
Subjects: 
budget balance
external balance
current account targeting hypothesis
twin deficits
government consumption
ARDL
causality
VAR
Portugal
JEL: 
F32
F41
H62
C22
Document Type: 
Working Paper

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