TWIN DEFICITS: DOES A GOVERNMENT DEFICIT CAUSE A CURRENT ACCOUNT DEFICIT? According to Obadic, Globan, and Nadoveza (2014), current account deficits have a significant impact on a nation’s economic stability because of its implications on the present and future generations. A number of studies conducted on the federal deficits attempt to establish an association between the current account and budget deficits through a phenomenon known as “twin deficits.” The findings from these studies reveal mixed outcomes with a majority of researchers supporting the stance while others rebuffing the association between the deficits. The postulation suggests that a direct relation exists between the two deficits since a rise in the government deficits leads to an escalation of the current deficit. Ramu (2017) describes the twin deficits theory as a proposition which exemplifies the existing positive association between trade account and budgetary deficits also known as fiscal deficits. The theory hypothesizes the association between account deficits and fiscal deficits (Kosteletou, 2013). In understanding the theory, Ramu (2017) outlines the major theoretical approaches associated with it. They include the Mundell Fleming Theory, the Ricardian Equivalence theory, the Risk Premium Theory and the Keynesian Absorption Theory. Ramu (2017, p.22) asserts that the Keynesian theory assumes that when budget deficits rise because of increased public spending or reduced taxation, it leads to the increase in national absorption. Subsequently, the intensification of importation activities results in deterioration of current account balances. Thus, the Keynesian principle posits that fiscal deficit causes a deficiency of current accounts. [Show Less]