Validity of Triple Deficit Hypothesis in Transition Economies

Abstract

Triple deficit hypothesis defined as a status in which budget deficit, current account deficit and saving-investment gap are seen together has become important to explain the equalization problems of the countries in recent years. Also, the cases where saving-investment gaps are equalized by means of external deficit or public deficit is attempted to equalize by means of external deficit define twin deficit. While Conventional Keynesian Approach argues that budget deficit causes current account deficit, Ricardian Equivalence Approach claims that there is no correlation between budget deficit and current account deficit. In this study, the validity of the triple deficit hypothesis for the 17 transition economies between 2003-2011 by means of convenient and uninterrupted data set was analyzed via panel regression models. The data set was collected from World Bank and IMF databases. The data belonging to the variables of current account deficit, budget deficit and saving-investment gap were employed. The findings showed that the triple deficit hypothesis for the 17 transition economies is not valid in the period among 2003-2011. However, some evidence was found about the validity of Ricardian Equivalence Approach and the private sector saving-investment gap was found to be the primary riser of the current account deficit.