In this paper we reconsider the twin deficit hypothesis (that fiscal shocks generating budget deficits also worsen external trade) both from a theoretical point of view and by analyzing data for Australia, Canada, the UK and the US. First, we assess the joint dynamics of budget and trade...

In this paper, we study the co-movement of the government budget balance and the trade balance at business cycle frequencies. In a sample of 10 OECD countries we find that the correlation of the two time series is negative, but less so in more open economies. Moreover, for the US the...