The Role of Fiscal Multipliers in High-Debt Economies

Mike Johnson ()

International Journal of Economic Policy, 2025, vol. 5, issue 3, 29 - 44

Abstract: Purpose: This study sought to examine the role of fiscal multipliers in high-debt economies. Methodology: The study adopted a desktop research methodology. Desk research refers to secondary data or that which can be collected without fieldwork. Desk research is basically involved in collecting data from existing resources hence it is often considered a low cost technique as compared to field research, as the main cost is involved in executive’s time, telephone charges and directories. Thus, the study relied on already published studies, reports and statistics. This secondary data was easily accessed through the online journals and library. Findings: The findings reveal that there exists a contextual and methodological gap relating to the role of fiscal multipliers in high-debt economies. Preliminary empirical review revealed that fiscal multipliers were generally weaker in high-debt economies due to limited fiscal space, reduced confidence, and concerns about sustainability. However, countries with strong institutions and well-targeted spending still achieved moderate multiplier effects. The effectiveness of fiscal policy depended not just on spending levels, but also on timing, composition, and governance quality. Unique Contribution to Theory, Practice and Policy: The Keynesian Theory of Aggregate Demand, Ricardian Equivalence Hypothesis and the Debt Overhang Theory may be used to anchor future studies on the role of fiscal multipliers. The study recommended focusing fiscal efforts on high-return sectors, improving institutional efficiency, and ensuring transparency in public spending. It advised coordinating fiscal and monetary policy and using flexible rules to balance short-term stimulus with long-term debt goals. International agencies were encouraged to tailor support to high-debt contexts and invest in public finance reform.

Keywords: Fiscal Multipliers; Public Debt; Fiscal Policy; Institutional Quality; Debt Sustainability (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:bhx:ijecop:v:5:y:2025:i:3:p:29-44:id:2988

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