Empirical study of “twin deficits” for the case of Senegal

Abstract : This article is concerned with the verification of the Ricardian neutrality hypothesis in Sénégal, by the existence or not of the phenomenon of “twin deficits”. The objective of this work was to study the correlation between the budget deficit and the current account deficit. The review of the theoretical literature focuses on Ricardian and conventional (classical and Keynesian) equivalence approaches dealing with the effects of public debt on the real economy. The review of the empirical literature made it possible to review certain applications by country or panel data to confirm or refute the hypothesis of neutrality by verifying the existence or not of the phenomenon of twin deficits. Thus, the methodological approach that we adopted is the cointegration test of the two variables through the use of the error correction model (ERM) according to the method of Engle and Granger (1987). Our results indicate an absence of cointegration between the budget deficit and current account balance variables and therefore an equilibrium relationship over the period studied, between these two variables, hence acceptance of the Ricardian Equivalence Proposal for the period 1991–2020. Also, this result is identified with the verification of the Ricardian Equivalence Proposal (PER) for Sénégal.

Keywords : Ricardian neutrality hypothesis, twin deficits, budget deficit, current account deficit.

JEL classification : E62, H62.

DOI: https://doi.org/10.18559/RIELF.2022.2.8