TESTING THE TWIN DEFICITS HYPOTHESIS IN THE BRAZILIAN ECONOMY: AN ANALYSIS OF THE PERIOD 1997-2014

Abstract

The analytical proposal of twin deficits underlies the controversy over the relationship between public and private savings and how primary and external deficits respond to such changes. A controversy, which associated with the increasing imbalance of public finance and serious external deficits growth, has instigated the purpose to analyze the soundness of such hypothesis in the Brazilian economy over these 18 years, especially the 2008 post-crisis. The results (i) have shown to be more sensitive to the different analyzed periods, as the politics as well as their results are related to the economic crisis; (ii) the effects of the fiscal deficit have affected more directly the private consumption, with the government financing its deficits by means of domestic debt, reinforcing by the way the hypothesis of the occurrence of the crowding out kind of effects and, (iii) the relationship between the budget deficits and the external deficits has shown to be weak, so as not to stand the existence of a systematic transmission of the primary deficits to the external deficits.