The article provides theoretical and empirical analysis of the Twin Deficits Hypothesis. This hypothesis consists of main assumption that budget deficit is the significant cause of trade deficit (current account deficit). There is no widely accepted agreement amongst the economists whether this issue is true or not. Some of them believe in Ricardian Equivalence Hypothesis - there is no coincidence between two deficits. This article sketches 3 theoretical channels of transformation from fiscal deficit to trade deficit - it happens mainly via increased consumption, fall in level of private savings, real interest rates and exchange rate. In most cases, empirical data are consistent with theoretical work and prove that there is a strong link between two deficits although it often depends on many additional variables as an economy is open and dynamic.