Twin deficits

Existence of either current account deficit and budget deficit in an economy is generally stated as "twin deficits" status in the economics literature. There are generally two different views that explain development process of Twin deficits. The first approach that tries to explain "Twin Deficits Hypothesis" is Conventional Keynesian Approach and the other one is Ricardian Equivalence Approach.While the Conventional Keynesian proposition claims that budget deficits led to current account deficits, on the other hand the Ricardian Equivalence Hypothesis claims that there is no relationship between the budget deficits and current account deficits. Knowing if there is an interaction between budget and current account variables or not, if there is an interaction determining the direction and the impact level, and also identifying other variables which are effective on this interaction is important in terms of economic policies that will be applied to resolve the twin deficits problem. In the study, In this study, firstly the concepts of budget deficit and current account deficit are examined, then we focused on the general framework of the twin deficits hypothesis. After this, theoretical approaches to the hypothesis and factors affecting the twin deficits phenomenon were discussed in detail.