Does fiscal policy influence the economic growth? Evidence from OECD countries

Abstract

This study highlights the effects of the fiscal and economic factors as well as of the worldwide governance indicators on the economic growth rate in the OECD countries for a period of time between 2002 and 2017. The empirical analysis implies the use of a Panel data which is econometrically estimated by applying the “least squares method” and the “generalized method of moments”, as we reasoned it would improve the efficiency of the estimation and remove the discrepancies caused by weak factors. The evidence shown positive links between the fiscal factors and economic growth as a result of the implementation of efficient and expansionary fiscal policies in the OECD countries. On a large scale, the worldwide governance indicators have proven to have positive effects on economic growth, but the government expenditure is the only economic variable of control which has negative impact on the economic growth. The conclusions bring forth the importance of the study by emphasizing on the future fiscal policies and strategies that should be considered by parties in order to stimulate the economic growth and to apply fair taxes.