Open AccessTesting for Twin Deficits and Ricardian Equivalence Hypotheses: Evidence from Iran
Author(s) -
Farzane Bagheri,
Salma Keshtkaran
Publication year - 2012
Publication title -
journal of social and development sciences
Language(s) - English
Resource type - Journals
ISSN - 2221-1152
DOI - 10.22610/jsds.v3i3.688
Subject(s) - ricardian equivalence , deficit spending , current account , economics , granger causality , causality (physics) , casual , equivalence (formal languages) , econometrics , macroeconomics , mathematics , fiscal policy , exchange rate , debt , physics , materials science , discrete mathematics , quantum mechanics , composite material
The main purpose of this study is to examine the relationship between budget deficit and current account deficit in Iran from 1971 to 2007. Twin deficits, which argues that a larger budget deficit leads to an expanded current account deficit, and Ricardian equivalence hypothesis, which states that there is no casual relationship between these two deficits, are examined for this purpose. To achieve this goal, Johansen co-integration and Granger causality tests are used for the period under study. The results indicate that there exists a long run equilibrium link between budget deficit and current account deficit. There is a one-way causality relationship from the budget deficit toward the current account deficit.