The role of fiscal policies for external imbalances: Evidence from the European Union

We revisit the relation between budget deficits and current account for 28 European Union countries from 1996 to 2019. find that an increase in deficit of 1 pp GDP results a deterioration 0.318 GDP, which supports Twin Deficits Hypothesis. On other hand, dynamic panel estimates partially corroborate Ricardian Equivalence Hypothesis presence fiscal rules index. In addition: i) two is asymmetric negative impact recent Eurozone banking sovereign debt crisis on balance observed; ii) with right-wing governments, mitigated; if government left, amplified; iii) after 2010, positively affects balance; iv) positive higher cases non-Eurozone countries, high low exports whereas it lower countries.