Dynamic relationship between fiscal deficit and current account deficit in India: multivariate cointegration and causality analysis

This study examines the dynamic relationship between fiscal balance and current account balance and also tests the 'twin deficit' hypotheses for India using quarterly data from 1996q1 to 2016q1. Empirical results support the existence of the twin deficit hypothesis and also suggest a reverse causality running from the current account balance to fiscal balance. These results have important policy implications for maintaining a lower current account deficit and fiscal deficit for India in the long run.