The socio-economic collapse induced by the Covid-19 pandemic in 2020 has called for stronger government intervention to support the most vulnerable households, firms and sectors. In response, fiscal stimulus packages announced globally from January 2020 to June 2021 have reached $17 trillion.
Options for spending fiscal resources have evolved from measures to address immediate health needs, to addressing the economic fall-out from social distancing measures and lockdown, and to building the foundations for more resilient, climate-friendly, gender-sensitive and transformative economic recovery. However, the fiscal resources available to low-income countries (LICs) remain extremely limited, pushing governments to be highly selective in deploying the interventions that would have the most positive short-term and long-term impact.
This paper reviews 94 cross-country, regional and country-level empirical and descriptive studies to identify evidence on fiscal multipliers – the output growth impact of fiscal policy – to provide evidence-based insights to low- and middle-income countries on using fiscal interventions to have the most impact in boosting inclusive, gender sensitive and sustainable economic growth. Across countries and all else being equal, a 1% increase in public expenditure tends to increase output by 1%, or a fiscal multiplier close to 1. In reality, countries are not equal, and specific characteristics and economic circumstances influence the effectiveness of fiscal policy on stimulating growth.
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