Fiscal policies and the current account : an Australian study

Neill, Christine. (1992). Fiscal policies and the current account : an Australian study Honours Thesis, School of Economics, University of Queensland.

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Author Neill, Christine.
Thesis Title Fiscal policies and the current account : an Australian study
School, Centre or Institute School of Economics
Institution University of Queensland
Publication date 1992
Thesis type Honours Thesis
Total pages 122
Language eng
Subjects 14 Economics
Formatted abstract
The widening of the current account deficit over the 1980s has caused a great deal of concern amongst policy makers and indeed the general public. One of the major policy responses of the government has been to tighten fiscal policy. A number of economic theories, notably the 'Twin Deficits' theorem and the Mundell-Fleming model suggest that such a policy should have powerful effects on the current account. This thesis therefore consists of two parts. Firstly, we examine theoretical models of the open economy to examine their implications for the relationship between fiscal policies and the current account. The lack of any consistent predictions is noted. Secondly, we examine empirical evidence regarding the association between the two deficits in the first instance, and between other fiscal policies, notably government expenditure innovations, in the second. A simultaneous equation system is developed and estimated in order to elucidate the economic mechanisms by which the various theoretical models suggest that the two deficits may be linked. The model is estimated over the period 1983(4) to 1992(1) for Australian data. In neither case could it be concluded that there was a particularly strong causal link running from fiscal policies to the current account. fu addition, Granger causality tests suggest that different types of government expenditures have different qualitative impacts upon the current account. We conclude that the evidence that fiscal policy is a powerful tool for influencing the current account is sketchy at best, and the emphasis on the aggregate borrowing or expenditure of the public sector unjustified.

Document type: Thesis
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Created: Tue, 23 Nov 2010, 14:28:43 EST by Ning Jing on behalf of The University of Queensland Library