Title: Dynamic relationship between fiscal deficit and current account deficit in India: multivariate cointegration and causality analysis

Authors: Manoranjan Sahoo; M. Suresh Babu; Umakant Dash

Addresses: School of Humanities, Kalinga Institute of Industrial Technology (KIIT) Deemed to be University, Bhubaneswar-751024, Odisha, India ' Department of Humanities and Social Sciences, Indian Institute of Technology Madras Chennai-600036, Tamil Nadu, India ' Institute of Rural Management Anand (IRMA), Post Box No. 60, Anand-388001, Gujarat, India

Abstract: This study examines the dynamic relationship between fiscal balance and current account balance and also tests the 'twin deficit' hypotheses for India using quarterly data from 1996q1 to 2016q1. Empirical results support the existence of the twin deficit hypothesis and also suggest a reverse causality running from the current account balance to fiscal balance. These results have important policy implications for maintaining a lower current account deficit and fiscal deficit for India in the long run.

Keywords: fiscal deficits; current account deficits; CADs; Granger causality test; twin deficit hypothesis; India.

DOI: 10.1504/IJPP.2022.124771

International Journal of Public Policy, 2022 Vol.16 No.2/3/4, pp.106 - 125

Accepted: 07 Apr 2022
Published online: 08 Aug 2022 *