Author

  • Farzane Bagheri

    • Department of Accounting, Dariun Branch, Islamic Azad University, Dariun, Iran
    • Iran, Islamic Republic of

  • Khosrow Piraee

    • Islamic Azad University, Iran-Shiraz Branch, Iran
    • Iran, Islamic Republic of

  • Salma Keshtkaran

    • Islamic Azad University, Iran-Shiraz Branch, Iran
    • Iran, Islamic Republic of

Abstract

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.

Keywords

References

  • Abell, J. (1990). Twin Deficits during the 1980s: An Empirical Investigation. Journal of Macroeconomics , 12(1), 81-96.
  • Alkswani, M. (2000).The Twin Deficits Phenomenon in Petroleum Economy: Evidence from Saudi Arabia. In Paper presented at the seventh annual conference, economic research forum (ERF) .
  • Anoruo, E. & Ramchander, S. (1998). Current Account and Fiscal Deficits: Evidence from Five Developing Economies of Asia . Journal of Asian Economics , 9, 487-501.
  • Bahmani-Oskooee, M. (1992). What are the Long-Run Determinations of the US Trade Balance? Journal of Post Keynesian Economics , 14, 85-97.
  • Bahmani-Oskooee, M. (1995). The Long-Run Determinations of the US Trade Balance Revisited? Journal of Post Keynesian Economics , 17, 457-65.
  • Barro, R. (1974). Are Government Bonds Net Wealth? Journal of Political Economy , 82 (6), 1095–1117.
  • Barro, R. (1989). The Ricardian Approach to Budget Deficits. Journal of Economic Perspectives , 3 (2), 37– 52.
  • Bernheim, B. (1987). Ricardian Equivalence an Evaluation of Theory and Evidence with Three Comments . NBER Macroeconomics Annual , 263-315.
  • Branson, W. (1993). World Interest Rate and the DM with Germany Unification. Paper Prepared for a Symposium in Honor of Heinz Konig, Manheim, January .
  • Cheung, Y. & Lai, K. (1993). Finite-Sample Sizes of Johansen’s Likelihood Ratio Tests for Cointegration. Oxford Bulletin of Economics and Statistics , 55, 313-328.
  • Corsetti, G. & Muller, G. (2006). Twin deficits: squaring theory, evidence and common sense. Economic Policy , 48, 597–638.
  • Darrat, A. (1988). Have Large Budget Deficits Caused Rising Trade Deficits? Southern Economic Journal , 52, 879-887.
  • Datta, K. & Mukhopadhyay, C. K. (2010). Twin Deficits Phenomenon in Maldives: Spectral and Time Domain Analysis of Time Series. The IUP Journal of Applied Economics , 5(2), 98-125.
  • Dewald, W.G. & Ulan, M. (1990).The Twin Deficit Illusion. Cato Journal , 10, 689-707.
  • Enders, W. & Lee, B. (1990) . Current Account and Budget Deficit: Twins or Distant Cousins? The Review of Economics and Statistics , 72(3), 373-381.
  • Evans, P. (1988). Do Budget Deficits Affect the Current Account? Unpublished Paper, Ohio State University.
  • Fidrmuc, J. (2003). The Feldstein-Horioka Puzzle and Twin Deficits in Selected Countries . Economics of Planning , 36, 135-152.
  • Hamilton, J. (1994). Time series analysis. Princeton, NJ: Princeton University Press.
  • Islam, F. (1998). Brazil’s Twin Deficits: An Empirical Examination. Atlantic Economic Journal , 26(2), 12128.
  • Johansen, S. (1988). Statistical Analysis of Cointegration Vectors. Journal of Economic Dynamics and Control , 12 , 231–254.
  • Johansen, S. (1991). Estimation and Hypothesis Testing of Cointegrating Vectors in Gaussian Vector Autoregressive Models, Econometrica, 59, 1551-1581.
  • Johansen, S. (1995). Likelihood-Based Inference in Cointegrated Vector Autoregressive Models. New York Oxford University Press.
  • Kim, K. (1995). On the Long-run Determinants of the US Trade Balance: A Comment. Journal of Post Keynesian Economics , 17, 447-55.
  • Kouassi, E. & Mougou´e, M. & Kymn, K. (2004). Causality Tests of the Relationship between the Twin Deficits. Empirical Economics , 29 , 503-525.
  • Marinheiro, C.F. (2008). Ricardian Equivalence, Twin Deficits and the Feldstein-Horioka Puzzle in Egypt. Journal of Policy Modeling , 30, 1041-1056.
  • Miller, S. M. & Russek, F. S. (1989). Are the Twin Deficits Really elated?. Contemporary Policy Issues , 7, 91115.
  • Piersanti, G. (2000). Current Account Dynamics and Expected Future Budget Deficits: Some International Evidence. Journal of International Money and Finance , 19, 255-171.
  • Rosenweing, J.A. & Tallman, E.W. (1993). Fiscal Policy and Trade Adjustment: Are the Deficits Really Twins?. Economic Inquiry , 31, 580-594.
  • Saleh, A.S. & Nair, M. & Agalewatte, T. (2005). The Twin Deficits Problem in Sri Lanka: An Econometric Analysis. South Asia Economic Journal , 6 (2), 165-191.
  • Siddiqui, M. (2010 ). Twin Deficits: An Empirical Analysis in the Case Pakistan. World Applied Sciences Journal , 8 (11), 1398-1400.
  • Zietz, J. & Pemberton, K. (1990) . The U.S. Budget and Trade Deficits: A Simultaneous Equation Model. Southern Economic Journal , 57, 23-34.

Downloads

No downloads have been recorded for this article yet. Figures appear here once readers begin downloading the full text.

How to Cite

Bagheri, F., Piraee, K., & Keshtkaran, S. (2012). Testing for Twin Deficits and Ricardian Equivalence Hypotheses: Evidence from Iran. Journal of Social and Development Sciences, 3(3), 77-84. https://doi.org/10.22610/jsds.v3i3.688

Share this article

License

Copyright (c) 2012 Farzane Bagheri, Khosrow Piraee, Salma Keshtkaran (Author)

Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

Author (s) should affirm that the material has not been published previously. It has not been submitted and it is not under consideration by any other journal. At the same time author (s) need to execute a publication permission agreement to assume the responsibility of the submitted content and any omissions and errors therein. After submission of revised paper in the light of suggestions of the reviewers, the editorial team  edits and formats manuscripts to bring uniformity and standardization in published material.

This work will be licensed under Creative Commons Attribution 4.0 International (CC BY 4.0) and under condition of the license, users are free to read, copy, remix, transform, redistribute, download, print, search or link to the full texts of articles and even build upon their work as long as they credit the author for the original work. Moreover, as per journal policy author (s) hold and retain copyrights without any restrictions.

Keywords

Section

Research Paper

Published in

Vol. 3 No. 3 (2012) Deficits, Entrepreneurship & Sustainable Cities View issue contents

Published

2012-03-15

Submissions

Have research to publish? Journal of Social and Development Sciences welcomes submissions.

Make a Submission