Fiscal multipliers: A review of fiscal stimulus options and impact on developing countries

Sherillyn Raga, January 2022


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 (IMF, 2021b). 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[1] – to provide evidence-based insights to low- and middle-income countries on using fiscal interventions to have the most impact in boosting inclusive and sustainable economic growth.

[1] This paper focuses on fiscal multipliers that measure the impact of government measures on output. However, the literature also offers alternative measures of fiscal multipliers in terms of responses from trade, investment, employment and unemployment, and inequality, among others.

Workers preparing to build a road in Bangladesh. Scott Wallace / World Bank.  License: (CC BY-NC-ND 2.0)