Nenad Jankovic

Faculty of Economics, University of Kragujevac, Kragujevac, The Republic of Serbia

The concept of a twin deficit relates to a budget deficit and a current account deficit. In the literature, there is no unique answer to the question of what the causal relationship between these deficits is. In any case, the existence of these deficits indicates that the spending of a country is higher than its production and investments are greater than savings. The form of financing could be a potential problem, as well as the manner of the use of these funds. Crisis situations contribute to the increasing importance of the issue. In these situations, those countries where a budget deficit chronically appears and which do not have enough domestic savings to finance excessive government spending will be in a worse position. The Republic of Serbia belongs to the group of countries where a budget deficit is a chronic phenomenon financed by external sources; therefore, the paper will analyze the issue of a twin deficit.

Keywords: a budget deficit, a current account deficit, a twin deficit, a public debt, an external debt, the Republic of Serbia

JEL Classification: E21, E22, F32, F34, H62, H63

Economic Horizons, 2015, Vol. 17, No 2, pp. 107-122; Published online 25 August 2015; doi: 10.5937/ekonhor1502109J