Original scientific paper
https://doi.org/10.2478/zireb-2025-0022
The Twin Deficit Hypothesis in Developed Nations: A Panel Analysis of Tourism and Non-Tourism Economies
Zdravko Šergo
orcid.org/0000-0002-0875-4777
; Institute of agriculture and tourism, Poreč, Croatia
*
Ana Težak Damijanić
; Institute of agriculture and tourism, Poreč, Croatia
Jasmina Gržinić
orcid.org/0000-0003-2371-1406
; Juraj Dobrila University of Pula, Faculty of economics and tourism Dr. M. Mirković, Pula, Croatia
* Corresponding author.
Abstract
This paper examines the relationship between fiscal and current account imbalances, commonly referred to as the “twin deficits,” in tourism-dependent versus non-tourism developed economies. Using annual data from 2000 to 2020, the analysis employs Difference-in-Differences panel regression (DiD-PR), panel unit root tests, Panel Generalized Method of Moments (PGMM), and Granger causality tests (GCT). The findings indicate that fiscal and external balances align consistently with the Current Account Targeting Hypothesis (CATH) across the Total and Control Country datasets, suggesting fiscal adjustments to external imbalances. In tourism-dependent economies, initial PGMM estimates show marginal support for CATH, which strengthens with robustness checks and causality tests. DiD-PR results confirm that tourism exposure significantly mediates the fiscal–external balance nexus. These findings highlight the structural distinctiveness of tourism-driven economies and provide policy insights for tailoring fiscal strategies in tourism-reliant versus diversified developed countries.
Keywords
Twin Deficits; Current Account Targeting Hypothesis; Granger Causality; Tourism Economy; Fiscal Imbalances
Hrčak ID:
341955
URI
Publication date:
30.11.2025.
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