TY  - JOUR
AU  - Roubini,Nouriel
TI  - Current Account and Budget Deficits in an Intertemporal Model of Consumption and Taxation Smoothing.  A Solution to the "Feldstein-Horioka Puzzle"?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 2773
PY  - 1988
Y2  - November 1988
UR  - http://www.nber.org/papers/w2773
L1  - http://www.nber.org/papers/w2773.pdf
N1  - Author contact info:
Nouriel Roubini
Department of Economics, KMC 7-83
Stern School of Business, New York University
44 West 4th Street
New York, NY  10012
Tel: 212/998-0886
Fax: 212/995-4218
E-Mail: nroubini@stern.nyu.edu
AB  - This paper presents an infinite horizon model of consumption and taxation " smoothing" that implies a simple relation between current accounts, budget deficits, investment rates and transitory output shocks. It is argued that such a model could explain the "Feldstein-Horioka puzzle" of the apparent lack of international capital mobility. Traditional regressions of the savings rate on the investment rate, as performed in the literature, are shown to be incorrect tests of the hypothesis of capital mobility because they do not control for the independent role of budget deficits and temporary output shocks in the current account and savings equations. Empirical tests of the model for a sample of 18 OECD countries present good evidence that international capital markets are widely integrated and that the "Feldstein-Horioka puzzle" might be explained by the important role of fiscal deficits in the determination of the current account and the saving behavior.
ER  -