Relationship between budget balance and private savings

Relationship Between Budget Balance and Private Savings, Master Thesis, Giresun, 2019 Borrowing while financing public deficits is perceived as an increase in wealth in the private sector. According to the Ricardian Equivalence Approach, budget deficit occurs as a result of the change in taxes. Borrowing to finance the budget deficit causes an increase in taxation in order to pay the debts in the future. Therefore, it is argued that there may be a relationship between budget balance and private savings. In his approach, there is no relation between budget deficits and current account deficit. According to the Keynesian approach, contrary to the Ricardian Equivalence Approach, budget deficits are assumed to cause the current account deficit. In this study, the relationship between budget balance and private savings was analyzed by using ARDL method with data between 1985-2016. The findings show that there is a long-term relationship between budget balance and private savings and private savings decrease when public savings increase. Therefore, it is concluded that Ricardian Equivalence Theorem is valid. Keywords: Budget Balance, Private Savings, Ricardian Equivalence, ARDL Boundary Test, Toda-Yamamoto Causality Test