| The effects of government fiscal policy on the international transactions are investigated both theoretically and empirically. In particular, the relationship between the government budget deficits and the trade deficits has been carefully looked into.;Applying various econometric techniques to several countries for the period of globally flexible exchange rate regime, this study found that the balance of trade (or the current account balance in a broader sense) is not affected by government fiscal policy. Government spending tends to reduce the trade balance but in a statistically insignificant way. However, there is no evidence that the government budget deficits deteriorate the balance of trade. |
