The Role of Fiscal Policies in Promoting Economic Growth

Abstract

This study examines the role of fiscal policies in promoting economic growth through a mixed-methods design that integrates econometric analysis with qualitative policy evaluation. Using data from 2018 to 2021 covering a globally representative sample of countries, the research assesses how government expenditure, taxation, and fiscal deficits influence GDP growth. Panel regression models and two-stage least squares estimation reveal that productive government spending, particularly on infrastructure, education, and health, exerts a positive and significant effect on long-term growth. In contrast, persistent fiscal deficits and poorly targeted expenditures undermine growth by eroding fiscal space and weakening investor confidence. The analysis further shows that tax structures matter: broad-based and progressive systems support inclusive growth, while excessive reliance on indirect taxes dampens household consumption and widens inequality. Complementary qualitative evidence from fiscal policy reports highlights that institutional quality and fiscal credibility are critical mediators of policy effectiveness, determining whether fiscal interventions achieve sustainability or result in debt overhang. Visualizations of the results confirm that countries with sound fiscal management experience stronger and more stable growth trajectories compared to those with fragile fiscal institutions. The findings underscore that fiscal policy remains a powerful instrument for promoting growth but must be carefully structured, credible, and context-specific. The study concludes that governments should prioritize productive expenditure, maintain prudent deficit management, and design equitable tax systems while strengthening institutional frameworks to maximize the growth-enhancing potential of fiscal policy.