Budget deficit and national savings: theoretical approach

Vol. 29 No. 1 (2009)

Jan-Mar / 2009
Published January 1, 2009
PDF-Portuguese (Português (Brasil))
PDF-Portuguese (Português (Brasil))

How to Cite

Resende, Marco Flávio da Cunha. 2009. “Budget Deficit and National Savings: Theoretical Approach”. Brazilian Journal of Political Economy 29 (1):24-42. https://centrodeeconomiapolitica.org.br/repojs/index.php/journal/article/view/468.

Budget deficit and national savings: theoretical approach

Marco Flávio da Cunha Resende
Do Centro de Desenvolvimento e Planejamento Regional da Universidade Federal de Minas Gerais – CEDEPLAR-UFMG
Brazilian Journal of Political Economy, Vol. 29 No. 1 (2009), Jan-Mar / 2009, Pages 24-42


A consensus has not yet emerged about the relationship between budget deficit, external deficit and national saving. According to mainstream economic literature the budget deficit can cause an insufficiency of national saving for a given investment rate. In this case, the investment rate will not be reduced if foreign saving is absorbed, causing an external deficit. In general, the mechanisms through which budget deficits could cause current account deficits are not highlighted in the works about this theme. We arrive at the conclusion that there is not a systematic relationship between budget deficit, current account deficit and national saving and that when it happens it can be processed only through changes in the real exchange rate.

JEL Classification : E21; E22; E62; F30; F41.

Keywords: Budget deficit current account national saving real exchange rate