Using data for twelve European countries over the period 1870-2013, the response of the current account balance to the budget deficit is found to be inverse-hump-shaped: an increase in the budget deficit results in a current account deterioration that is sizeable but less than one-to-one (so the two balances are “siblings” rather than “twins”), and persistent but temporary. Specifically, an increase in the fiscal deficit by 1% of GDP results in deterioration of the current account that peaks at about 0.25% of GDP but dies out after a maximum of ten years
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