Twin Deficit
The simultaneous occurrence of a government fiscal deficit and a current account deficit in a country's economy.
What is Twin Deficit?
The twin deficit hypothesis argues that a government budget deficit tends to cause or accompany a current account deficit, because government borrowing raises real interest rates, attracting foreign capital inflows that appreciate the exchange rate and make exports less competitive. When a country imports more than it exports (current account deficit) while simultaneously spending more than it collects in tax revenue (fiscal deficit), both imbalances reinforce each other. The US experienced a prominent twin deficit in the 1980s when the Reagan administration's fiscal expansion coincided with a large trade deficit, sparking debate among economists about the causal relationship between the two deficits.
Example
In FY2020, the US federal government ran a budget deficit of approximately $3.1 trillion (15% of GDP) while simultaneously running a current account deficit of around $616 billion (3% of GDP). Both deficits widened sharply due to pandemic stimulus spending and reduced exports during the economic shutdown.
Source: US Bureau of Economic Analysis — Current Account Data