o:28489 The effect of fiscal deficit on the external imbalances in the European Union en Abstract: This paper analyzes the effect of the fiscal deficit on the current account deficit in the European Union during the period 1995-2018. The purpose is to examine to what extent an increase in government spending affects the deterioration of terms of trade and contributes to increasing external imbalances. Econometric methods for heterogeneous panel data models are used to analyse the existence of a long-run relationship between the fiscal deficit and the current account. The empirical findings indicate that the twin deficits hypothesis is not confirmed for the whole European Union, but only for a certain number of member states, where a long-run relationship still exists, confirming the impact of the fiscal deficit on the current account. Keywords: Fiscal deficit; Current account; Twin deficit hypothesis; Panel unit root tests; Panel cointegration analysis; Heterogeneous panel data models with cross-sectional dependence 1552099 10.2298/PAN190523017J 1552101 1452-595X 2023-03-30T13:48:10.809Z 44 no 46 Kosta Josifidis Radmila Dragutinović Mitrović Univerzitet u Beogradu Ekonomski fakultet person 12776807 0000-0003-2566-4666 Slađana Bodor Univerzitet u Novom Sadu Ekonomski fakultet person application/pdf 635232 https://phaidrabg.bg.ac.rs/o:28489 no yes 16 70 92000001 11A03 Panoeconomicus 68 5 625 652 2021