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Twin deficits, twenty years later

Author

Listed:
  • Leonardo Bartolini
  • Amartya Lahiri
Abstract
Recent declines in the U.S. current account and fiscal balances have sparked renewed debate over the twin-deficit hypothesis, which argues that a larger fiscal deficit, through its effect on national saving, leads to an expanded current account deficit. This study reviews international evidence on the hypothesis, finding some support for it. However, the link observed between fiscal and current account deficits is too weak to support the view that deficit reductions in the United States can play a major role in correcting the nation's current account imbalance with the rest of the world.

Suggested Citation

  • Leonardo Bartolini & Amartya Lahiri, 2006. "Twin deficits, twenty years later," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 12(Oct).
    • Handle: RePEc:fip:fednci:y:2006:i:oct:n:v.12no.7
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