The dynamic linkages of fiscal and current account deficits: New evidence from five highly indebted European countries accounting for regime shifts and asymmetries

► We study the dynamic linkages between the twin-deficits of five European economies. ► We use data from Portugal, Ireland, Italy, Greece and Spain for the period 1971-2009. ► We test for the presence of structural breaks and asymmetries. ► We provide evidence in favor of the 'twin deficits hypothesis'. ► We confirm asymmetric linkages between the two deficits in the long-run time horizon.