Governance quality vs. stimulus size: fiscal policy effectiveness during the COVID-19 pandemic

Mert Topcu () and Mustafa Alpin Gulsen ()
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Mert Topcu: Alanya Alaaddin Keykubat University, Faculty of Economics, Administrative and Social Sciences, Department of Economics, Antalya, Türkiye
Mustafa Alpin Gulsen: Alanya Alaaddin Keykubat University, Faculty of Economics, Administrative and Social Sciences, Department of Economics, Antalya, Türkiye

Public Sector Economics, 2025, vol. 49, issue 2, 251-272

Abstract: Given the importance of good governance for the efficiency of government spending, this study reveals the role of governance quality in fiscal policy effectiveness during the COVID-19 outbreak. Using cross-country threshold regressions for 144 countries, we find that a stringent lockdown policy (i) does not lead to economic downturn in countries with larger fiscal stimulus, (ii) leads countries with poor governance quality to head toward economic slowdown even with higher stimulus packages, (iii) does contribute to economic recovery even in countries with smaller fiscal packages if accompanied by higher governance quality. Overall, the results suggest that good governance helps achieve economic recovery, whereas an increase in the size of the fiscal stimulus can, at best, help protect against economic slowdown. The empirical findings have several implications for policymakers in countries where the blow hits the hardest, as well as for fiscal governance framework.

Keywords: fiscal stimulus; governance quality; COVID-19 (search for similar items in EconPapers)
JEL-codes: H11 H30 O11 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:ipf:psejou:v:49:y:2025:i:2:p:251-272

DOI: 10.3326/pse.49.2.4

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