We investigate the bilateral relationship between government budget balances and current account balances for Portugal and Germany. We find that the response of the current account balance to the budget balance is greater in Portugal than in Germany. On the other hand, the response of the budget...

We estimate the political economy determinants of budget deficit forecast errors. Since the adoption of the Stability Pact, Eurozone governments have manipulated forecasts before elections. The political orientation and the institutional design of governments also affects the quality of forecasts.