Impact of Fiscal policy on economic growth: A case of EU countries


Aims: The research article aims to investigate the fiscal policy impact on economic growth while drawing evidence from the European Union (EU) countries.

Method: To conduct this research, a secondary quantitative methodology was adopted, and the data was collected that included the EU countries from 2007 to 2021. The results had been analysed through the STATA software, which provides the GLS regression results and the testing of heteroskedasticity and autocorrelation issues.

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The global public authorities have responded to the economic and financial crisis of the last decade by implementing effective fiscal policy (Maşca et al., 2015). Fiscal policy is mainly targeted for short-term objectives. Unfortunately, it has been found that the long-term consideration of fiscal policy is not significant or favourable due to its collateral effects on the countries’ economic growth (Adedoyin et al., 2020). The economy’s upward trend has re-established itself due to increased public expenditures.

Fiscal policy is the use of taxation and government spending that influences the state’s economy. Worldwide, governmental institutions use fiscal policy to promote strong and sustainable growth of the economy to reduce poverty (Monamodi, 2019). Makin et al., (2021), fiscal policy affects governmental spending by impacting the taxation costs on the future generation of the business. Reportedly, European Union does not have a significant central fiscal authority. Its budget is only 2 percent of the Gross domestic product (GDP), and budgetary autonomies remain under the hands of the parliament member states (VoxEU, 2022). Monamodi, (2019), the fiscal policy contains the attributes that facilitate the countries in improving their economy by adjusting the governmental spending and revenues. The government can impact the economy by either decreasing or increasing economic activities in the short term.

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