Impacts of Fiscal Policy and Institutions on Economic Growth: A Dynamic Panel Data Analysis

Abstract

This paper aims to investigate the effects of fiscal policy and institutions on economic growth. It
uses data available in the Organization for Economic Cooperation and Development database for 44 countries and the period from 2009 to 2018. The estimation used the Generalised Method of Moments (GMM-System) approach. The results indicated a long relationship between fiscal policy, institution, and economic growth. There was a positive and statistically significant impact on the aggregate of government expenditures and the aggregation of other fiscal variables and institutions in GDP per capita. In addition, the results showed that institutions play a vital role in GDP growth per capita. Moreover, all the results in this research follow the theory that deals with the Solow model, which recommends that the initial GDP coefficient should be negative, interpreted as conditional convergence, while investment is positive and population growth is negative.