Description
This paper investigates the direct and indirect effects of fiscal institutions on the current account. A variable that has been missing so far in the literature about the determinants of the current account and twin deficits. We define four possible channels through which fiscal institutions can have an effect on the current account: i) Ricardian equivalence, ii) trust of agents, iii) interest rates and iv) the composition of the fiscal deficit. Using the index on the stringency of fiscal institutions based on partially ordered set theory, introduced in Bachtroegler et al. (2014), we analyse the direct and interaction effects in a panel setting of 78 countries from 1985-2012. Our results underline the importance of adding fiscal institutions into the standard CGER models of the determinants of the current account. As common in the literature we find a positive relationship between fiscal policy and the current account, but this effect is significantly reduced when strong fiscal institutions are in place.| Period | 5 Jun 2015 |
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| Event title | Annual Meeting of the Austrian Economic Association 2015 |
| Event type | Unkonwn |
| Degree of Recognition | National |