Combine 1/2 cup sugar and cinnamon in a shallow bowl.

Bring 1 cup water, remaining sugar, and butter to a boil in a medium saucepan over medium-high heat.

Add flour and cook, stirring constantly, on low heat for 1 minute, or until the mixture pulls away from the side of the pan.

Remove from heat and let cool slightly.

Add eggs one at a time, beating well after each addition until fully blended.

Stir in vanilla extract.

Spoon the dough into a pastry bag fitted with a large star tip.

Heat oil in a deep fryer to 350 degrees F (175 degrees C).

Pipe the dough in batches into 5-inch strips directly into the hot oil.

Cook for about 3 minutes, or until each churro is golden brown on both sides, turning after 1 minute.

Remove from the oil with a slotted spoon and drain on paper towels.

Add the warm churros, one at a time, to the cinnamon-sugar mixture and toss to evenly coat.

Microwave caramels and the remaining water in a microwaveable bowl on high for 2 minutes, stirring every 30 seconds, until the caramels are completely melted and the sauce is well blended.

Serve the warm churros immediately with the caramel dipping sauce.