Fiscal Policy and Economic Growth in Developing Countries: Evidence from 12 Emerging Economies

Abstract

This study examines the impact of fiscal policy on economic growth in 12 developing countries over the period 2000–2023. Using panel data techniques, including fixed effects, random effects, pooled OLS, dynamic System GMM, and long-run estimators (FMOLS and DOLS), the analysis investigates the roles of government expenditure, tax revenue, fiscal balance, and public debt, while controlling for inflation, capital formation, population growth, and human capital. Preliminary analysis, including descriptive statistics, correlation, fiscal composition, multicollinearity, unit root, and cointegration tests, confirms data suitability and long-run relationships. Results indicate that government expenditure, tax revenue, fiscal balance, capital formation, and human capital positively influence GDP growth, whereas high public debt, inflation, and population growth exert negative effects. Interaction and moderation analyses reveal that human capital amplifies the growth effects of fiscal policy, while inflation dampens it. Robustness checks and Granger causality tests support the main findings, highlighting unidirectional causality from fiscal variables to growth. The study underscores the importance of balanced fiscal management, prudent debt strategies, and human capital investment to enhance growth outcomes. These findings provide actionable insights for policymakers seeking to design effective, growth-oriented fiscal frameworks in emerging economies.

Received: 2026-03-30 | Revised: 2026-05-25 | Accepted: 2026-05-26 | Published: 2026-05-30

Declarations

Ethics and Guidelines: Not applicable.

Consent to participate: Not applicable.

Consent to publish: The authors have provided consent to publish.

Competing interests: The authors declare no competing interests.

Data availability statement: Data will be made available on reasonable request from the corresponding author.

Funding: This research received no external funding.

Clinical Trial Number: Not Applicable.

Declaration of using generative AI: During the preparation of this work the author(s) used ChatGPT in order to correct the grammatical errors. After using this tool/service, the author(s) reviewed and edited the content as needed and take full responsibility for the content of the published article.

Author Contributions: Conceptualization, T.A.; methodology, T.A.; formal analysis, T.A.; writing—original draft preparation, T.A.; writing—review and editing, T.A. All authors have read and agreed to the published version of the manuscript.