Title:	Twin deficits threat in the European union
Authors:	Sinčáková, Marianna Šuliková, Veronika Gavurová, Beáta
Citation:	E+M. Ekonomie a Management = Economics and Management. 2017, č. 1, s. 144-156.
Issue Date:	2017
Publisher:	Technická univerzita v Liberci
Document type:	článek article
URI:	http://www.ekonomie-management.cz/archiv/vyhledavani/detail/1378-twin-deficits-threat-in-the-european-union/ http://hdl.handle.net/11025/25712
ISSN:	2336-5604 (Online) 1212-3609 (Print)
Keywords:	nerovnováha;dvojí schodek;běžný účet;saldo;práh
Keywords in different language:	imbalances;twin defi cits;current account;budget balance;threshold
Abstract in different language:	The aim of the contribution was to identify presence and contagion threat of twin defi cits, i.e. simultaneous budget and current account defi cit in the EU countries. Using correlations and Granger causality testing we recorded existence of twin defi cits in most of EU countries. In several countries we confi rmed traditional causality that budget defi cit implies current account defi cit. In several other countries the opposite, known as current account targeting, was true. In two counties (Spain and Hungary) bi-causality was detected. We consider existence of bi-causality as the most complicated situation in practice. Then it is a real vicious cycle. Policy makers must target both imbalances at the same time, to solve this problem, which can be very diffi cult. Persistent macroeconomic problems in these two countries confi rm our assumption.Our paper extends existing literature by determination of two thresholds for public debt-to-GDP which modify occurrence and risk of twin defi cits in the EU countries. These break points were identifi ed via threshold panel data model. Twin defi cits problems are not probable for countries with public debt-to-GDP lower than 30.668%. However, risk of this phenomenon is much higher if public debt is from 30.688% to 98.126%. Countries with public debt over 98.126% suffer from high and persistent twin imbalances. Therefore we suggest reconsideration of Maastricht criterion on public debt and its reduction to 30%. Finally we observe contagion effect of twin defi cits throughout EU countries regardless their economic performance or the euro area membership which is indirectly triggered also in the case of non-euro area members.
Rights:	© Technická univerzita v Liberci CC BY-NC 4.0
Appears in Collections:	Číslo 1 (2017) Číslo 1 (2017)

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