| Abstract |
This paper examines the determinants of current account balance in financially liberalized countries between 1980 and 2011, applying panel cointegration approach to 21 OECD members, and make projections of Japan' current account balance in a couple of decades based on the results of estimation. Both an elasticity and an absorption approaches are examined under a general model of current account balance. From our results, we detect that exchange rates and terms of trade are important determinants of current account balance in an elasticity approach. In absorption, the tax rate has a significant determinant of the government S-I balance. In addition, the crowding out effect is statistically significant in the regression of the private S-I balance function. On the other hand, projections based on the results of estimation illustrate that the deficits in the net exports are structural, instead of temporal. Even a 10% increase in tax revenue ratio to GDP cannot stop increase in the net government debts. In addition, Japan's current account balance is expected to turn to be negative in the latter half of the 2010s. However, the combination of tax increase and successful Abenomics can mitigate an increase in the government debts and a deterioration of current account balance. |