Abstract
Fiscal stimulus is widely championed as a catalyst for economic growth, but does the empirical evidence support this belief? Using OECD data spanning six decades, we examine the long-term relationship between government spending, debt issuance, and real per capita GDP growth. Our analysis suggests a robust negative correlation. Higher government expenditures and rising debt levels are systematically associated with significantly slower economic growth. These findings hold both cross-sectionally and intertemporally, and remain significant even after controlling for demographics, relative affluence, and prior growth trends. While some level of government spending is essential, our results challenge conventional assumptions about fiscal stimulus by highlighting that public sector expansion beyond certain thresholds undermines rather than enhances economic prosperity.
