International Journal of Humanities and Social Science Review

This paper examines the causal relationship between budget deficit and current account deficit, and the direction of causality for Turkey. Keynesian view accepts the possible relationship between the budget deficit and current account deficit, while Ricardian Equivalance Hypothesis rejects this relationship. The validity of these hypothesis examined between 1994-2010 period using monthly data and Granger causality test. The Granger causality test indicates one-way causality that runs from current account deficit to budget deficit. The empirical analysis in this paper supports the Keynesian view that there is a linkage between budget deficit and current account deficit.