Government Fiscal Policy, Public Debt and Economic Stability: Evidence from Developing Economies

International Journal of Economics and Management Intellectuals [IJEMI]

Government Fiscal Policy, Public Debt and Economic Stability: Evidence from Developing Economies

Author : Dr. Ananya Singh

Open Access | Volume 2 Issue 5 | 2025 | Pages 1–9

https://doi.org/10.63665/ijemi-y2f5a001

How to Cite :

Singh, A., "Government Fiscal Policy, Public Debt and Economic Stability: Evidence from Developing Economies", International Journal of Economics and Management Intellectuals [IJEMI], 2025, 2(5): pp. 1–9.
Journal Book

Abstract

Abstract - The book analyses the complex interaction between government public debt, fiscal policy, and macroeconomic stability for developing countries. Fiscal policy being one of the key instruments for increasing economic growth and social well-being can destabilize macroeconomic stability through excessive government debt and create inflation pressure, exchange rate volatility, and market instability. With panel data over a period of two decades for a sample of developing nations, this study employs econometric modelling to estimate short- and long-run effects of debt accumulation and budget deficits and policy interventions on macroeconomic stability indicators. According to the findings, it is clear that proper handling of the fiscal situation as well as personal policies towards debt reduction raise macroeconomic stability greatly, but unrestricted fiscal growth brings about volatility. This study offers working recommendations to policymakers with an aim of reconciling developmental objectives and sustainable fiscal operations, thereby offering theoretical and practical knowledge in fiscal management in newly established economies.

Keywords

Keywords – Fiscal Policy, Public Debt, Economic Stability, Developing Economies, Macroeconomic Volatility, Debt Sustainability, Panel Data Analysis.

Conclusion

A. Summary of Key Findings

This research provides a critical examination of the intersection of public debt, fiscal policy, and economic stability in emerging economies. Findings of the research are that prudent fiscal policy, in particular, deficit reduction and debt sustainability in place, take the central position to guarantee both short- and long-term macroeconomic stability. Short-run impact is concerned with managing inflation, stabilizing interest rates, and upholding exchange rate confidence, while medium- and long-term impacts depend on servicing debt on sustainable terms, productive public expenditure, and stronger institutional arrangements. Case studies of developing economies emphasize that expansionary policy can cause growth but, in the absence of adding the dimension of debt management, may also create macroeconomic risk. Concurrently, unsustainable build-up of debts in the absence of institutional restraint can undermine confidence among investors, displace private capital, and augment regional and sectoral imbalances. Overall, these observations confer strength to the multi-dimensional, case-specific character of fiscal measures and the necessity to balance growth with fiscal discipline.

B. Theoretical and Practical Contributions

Theoretically, the paper extends macroeconomic models—Keynesian, Ricardian equivalence, and the Debt Laffer Curve—within the context of developing nations. It empirically validates how spending composition, deficit trends, and debt management shape growth, inflation, and stability. Practically, it offers policy recommendations advocating selective fiscal consolidation, efficient debt financing, and high-return investments. The study also highlights regional and sectoral diversity in fiscal outcomes, underscoring tailored policy design for resilience.

C. Limitations and Directions for Future Research

There are some limitations of the study that are identified. Reporting inconsistencies and availability of data in developing economies make long-run trend analysis challenging. Besides that, analysis is performed on macroeconomic aggregate statistics that may lack micro-level or sector-level data. Shocks originating from the outside world, e.g., global financial crises or commodity price shocks, are equally hard to disentangle in their effects on the fiscal performance. Longitudinal analysis over long periods for the fiscal policies following an extremely long time period, sectoral analysis to identify heterogeneous effects, and drawing emerging economies into the picture so as to have a wider base for cross-country comparison would be the area for future research. Sophisticated econometric methods and simulation modelling can also be used to better comprehend complicated fiscal relationships and a finer analysis of policies of sustainable fiscal management.

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