An Experimental Study of the Relationship between Budget and Current Account Deficits in Iran and Selected Developing Countries

As the Current account balance and government budget balance are important macroeconomic variables، the relationship between them have been one of the main questions of Macroeconomic researchers over the past three decades. Therefore، the main objective of this paper is to examine empirically the relationship between budget and current account deficits. Using panel data of 50 developing countries over the period of 1990-2012، three econometrics methods (Error Components Two-Stage Least Squares، System Generalized Method-of-Moments and Dumitrescu-Hurlin granger causality test) have been employed in this study. The results showed that the twin deficit hypothesis is valid for developing countries. Therefore، due to the adverse effects of budget and current account deficits، it is suggested that developing countries can increase taxes to achieve stable revenue sources for financing the budget deficit، and to reduce their own instability and current account deficit.