Fiscal policy and economic growth: Evidence from European Union countries

This article empirically examines the fiscal policy elements affecting economic growth
in 27 European countries and Switzerland (Without the United Kingdom). The research
objective is to estimate the impact of macroeconomic variables such as tax revenue,
government expenditure and public debt on the economic development of 28 European
countries. The study employs a panel ordinary least squares (POLS) technique with a
fixed effect estimation method. The Hausman test was applied to support the validity of
the fixed effect over the random effect estimation model. Annual secondary data for the
period 1995-2020 were used, including 728 observations. Based on the results, it may
be inferred that the increase in government expenditure and tax revenue leads to an
increase in economic growth in 28 EU countries. However, the higher rates of public
debt lead to a decrease in economic growth. From the standpoint of fiscal policy, we
conclude that Keynesian theory in the 28 EU countries was present. The study has
empirically established the importance of fiscal policy tools in European countries. The
study calls for the establishment of moderate fiscal policy strategies that would help
ensure solvency and stimulate economic growth.