Abstract:

Today, budget and current account deficits are among the most critical problems of most developed and developing countries. This situation, defined as a twin deficit in the literature, is analysed within the framework of different views. These views are the traditional Keynesian view that causality is from the budget deficit to the current account deficit, the current account targeting view where the causality is reversed from the current account deficit to the budget deficit, the Feldstein-Horioka Hypothesis that there is a two-way causality between the budget deficit and the current account deficit, and the view that there is no relationship between the budget deficit and the current account deficit. It is the Ricardian Equivalence Hypothesis in which there is no. The study aims to analyse the relationship between the budget deficit and the current account deficit in Turkey from 1975 to 2020 within the scope of structural breaks. For this purpose, in addition to the ADF unit root test, the Zivot-Andrews unit root test with structural breaks was applied. Then, the Gregory-Hansen cointegration test was used to determine the long-term relationship between the series, and the Granger causality test was applied to determine the direction of the relationship. The findings determined a cointegration between budget deficit, current account deficit and interest in Türkiye. It was also concluded that there is a unidirectional causality relationship from the current account deficit to the budget deficit and interest and a bidirectional causality relationship between the budget deficit and interest. Therefore, it can be stated that the view of current account targeting was supported in Türkiye in the relevant period.

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