Triple deficits and the feldstein-horioka hypothesis: Apanel analysis on emerging economies

The triplet deficit hypothesis refers to the situation in which the current account deficit, budget deficit and investment-savings deficit occur simultaneously. In order to ensure the balance in the economy, the internal and external balance of the country must be equal to each other. The external balance in a country consists of the current account balance; the internal balance consists of the budget balance and the private sector investment-savings balance. According to this equation, in a situation where the internal balance gives a deficit, the external balance must give the same rate of deficit. In an economy where the current account deficit and the budget deficit run at the same time, if domestic savings are insufficient to supply domestic investments, as a result, a deficit is seen in the investment savings balance. In this case, the country is under the influence of triplet deficit. Triple deficits have significant impacts on the macroeconomic stability of developing countries. This study aims to test the hypothesis of triplet deficits for 14 Emerging Economy in the period 1995-2020 with panel data analysis method. The triplet deficit tested in the study was evaluated on the basis of the relationship of countries with current account deficit, budget deficit and investment savings deficit. The data contained in the analysis were gleaned from the IMF and Global Economy database. The study worked with Pedroni and Kao cointegration tests and their long-term estimators. The findings show that the triplet deficit hypothesis is not valid in the time frame studied for 14 Emerging Market Economies. However, the study found evidence confirming the Ricardian Equivalence hypothesis. Keywords: Triple Deficits Hypothesis, Feldstein- Horioka Hypothesis, Panel Cointegration.