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.