This paper reviews the theoretical and empirical literature on the effectiveness of fiscal policy. The focus is on the size of fiscal multipliers, and on the possibility that multipliers can turn negative (i.e., that fiscal contractions can be expansionary). The paper concludes that fiscal multipliers are overwhelmingly positive but small. However, there is some evidence of negative fiscal multipliers.

This paper explores how fiscal policy can affect medium- to long-term growth. It identifies the main channels through which fiscal policy can influence growth and distills practical lessons for policymakers. The particular mix of policy measures, however, will depend on country-specific conditions, capacities, and preferences. The paper draws on the Fund’s extensive technical assistance on fiscal reforms as well as several analytical studies, including a novel approach for country studies, a statistical analysis of growth accelerations following fiscal reforms, and simulations of an endogenous growth model.

This paper describes the world economy in 1991 and balanced growth in industrial countries. The year 1985 has been somewhat disappointing from the viewpoint of economic growth. Expansion fell back by more than expected in the industrial world, and world trade increased only modestly. Macroeconomic policies in industrial countries are likely to be directed toward the medium-term objective of maintaining financial stability, while reducing the claims of governments on economic resources. Macroeconomic policies in developing countries reflect the considerable diversity of circumstances of the countries included in this group.