Twin deficits in Turkey: An econometric application for the term of 1990-2009

Abstract

Budget deficits and current deficits are some of the most important macroeconomic problems in Turkey. Therefore, having knowledge about the shape and direction of the relationship between these two deficits is so important for the future policies. These deficits are called 'Twin Deficits Hypothesis'. For USA, as being in the first place, other countries and Turkey, the relationship between these two deficits have been tried to be tested by empiric applications. In this study, with the data set including the rate of the budget balance and current account balance of Turkey to gross domestic product, Granger causality test and Co-integration Analysis is done. Findings show that there is causality between the parameters through the current account balance from the budget balance. According to these results, not Ricardian Equivalence Hypothesis, but Traditional Keynesian Hypothesis is valid for Turkey.