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Studies on Fiscal Policy in Times of High Debt

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A special issue of Economies (ISSN 2227-7099). This special issue belongs to the section "Macroeconomics, Monetary Economics, and Financial Markets".

Deadline for manuscript submissions: 31 October 2026 | Viewed by 9805

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Prof. Dr. Gabriela Dobrotă

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Faculty of Economics, Constantin Brancusi University of Targu Jiu, Targu Jiu, Romania
Interests: economic growth; fiscal policy; business environment; marking; circular economy
Special Issues, Collections and Topics in MDPI journals

Special Issue Information

Dear Colleagues,

Fiscal policy plays a crucial role in addressing the economic challenges posed by high debt levels, a pressing issue in today’s global economy. The sustainability of public finances, economic stability, and social equity are shaped by factors such as fiscal rules, debt management strategies, the effectiveness of taxation systems, public expenditure efficiency, and institutional frameworks. Moreover, the impact of fiscal policy may vary depending on a country’s economic, political, and social context, as well as external influences, such as global financial conditions, geopolitical tensions, and climate risks.

This Special Issue aims to deepen understanding of fiscal policy in high-debt environments, offering innovative approaches to balancing economic growth with debt sustainability. Some topics for this Special Issue, though not limited to these, include the design and effectiveness of fiscal rules, the role of fiscal multipliers in indebted economies, strategies for public debt management and reduction, the interplay between fiscal and monetary policies, the distributional effects of fiscal measures, and the challenges of financing sustainable public investments during periods of fiscal stress. Additionally, research on fiscal consolidation, cross-country comparative studies, and the implications of global economic trends is welcome, providing valuable insights for policymakers, academics, and researchers. Papers may be theoretical or empirical, employing approaches such as case studies, comparative analyses, theoretical frameworks, or empirical investigations, among others.

Prof. Dr. Gabriela Dobrotă
Guest Editor

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Keywords

fiscal policy
debt sustainability
debt crisis
fiscal consolidation
public debt management
budget deficit
macroeconomic stability

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Published Papers (5 papers)

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Research

19 pages, 914 KB

Open AccessArticle

Do Fiscal Contractions Shocks Trigger Investment Collapses: Evidence from a Global Panel

by Prashanth Kumar AC, Mukund Sharma and Santhosh Venugopal

Economies 2026, 14(5), 171; https://doi.org/10.3390/economies14050171 - 11 May 2026

Viewed by 278

Abstract

This study investigates the impact of fiscal contractions on investment dynamics, with a particular focus on the risk of “investment collapses.” Using an unbalanced panel of 107 countries over the period 1960–2023, we construct an investment-collapse indicator based on extreme declines in investment share and identify fiscal contraction shocks based on movements in government spending relative to its historical floor. This study uses a distributed lag framework with Driscoll–Kraay robust standard errors to account for spatial and temporal dependencies while controlling for human capital, institutional quality, and output growth. We find evidence of intertemporal trade-offs, whereby fiscal contractions are associated with an increased likelihood of sharp declines in investment in the impact year. This collapse is followed by a reversal in the subsequent year, suggesting a stabilizing effect that prevents the persistence of extreme downside risk. The results are robust to conditional fixed-effects-based logit specifications and when subjected to stricter shock thresholds. Full article

(This article belongs to the Special Issue Studies on Fiscal Policy in Times of High Debt)

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46 pages, 1633 KB

Open AccessArticle

The Redistributive Transformation of Fiscal Policy in Times of High Debt in Belgium (1912–2024): From Ability-to-Pay Taxation to Competitive Adjustment

by Lucien Rigaux

Economies 2026, 14(5), 167; https://doi.org/10.3390/economies14050167 - 8 May 2026

Viewed by 340

Abstract

This article examines how the redistributive design of crisis-time fiscal policy shaped Belgian federal public debt trajectories from 1912 to 2024. Drawing on a reconstructed debt-to-GDP series and historical–institutional analysis, it identifies a secular transformation in the distributive logic of fiscal adjustment. From 1912 to the late 1970s, broadly speaking, debt surges were addressed through explicitly progressive instruments grounded in the ability-to-pay principle, and on the view that capital should be taxed at least as heavily as labour. From the 1980s onward, this paradigm gave way to a competitiveness-oriented model that eroded tax progressivity, detached capital from the global tax base, and shifted the fiscal burden onto consumption and labour—disproportionately affecting middle-income earners. The evidence presented in this article points to three plausible determinants of this transformation: the role of mass warfare in legitimising progressive taxation; the ideological shift from Keynesian interventionism to supply-side orthodoxy; and the twin constraints of internal federalisation and external Europeanisation. Furthermore, the timing and modalities of these adjustments appear to have been significantly shaped by linguistic party fragmentation and the recurrent use of emergency executive powers—a pattern that was increasingly mirrored in the European Union’s own governance. Ultimately, since 2020, crisis management has relied almost exclusively on debt-financed expenditure. While the EU has temporarily acted as a redistributive counterweight to domestic fiscal paralysis, these ad hoc supranational interventions have left Belgium’s underlying debt trajectory unchanged. Full article

(This article belongs to the Special Issue Studies on Fiscal Policy in Times of High Debt)

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26 pages, 845 KB

Open AccessArticle

Governance Quality and Fiscal Discipline: Evidence from an Emerging Economy

by Enas Alsaffarini and Bahaa Subhi Awwad

Economies 2026, 14(3), 89; https://doi.org/10.3390/economies14030089 - 10 Mar 2026

Viewed by 687

Abstract

This study examines the impact of key governance dimensions on public budget rationalization in Palestine from 2002 to 2023. Utilizing Legitimacy Theory, the research assesses how institutional quality affects fiscal outcomes, including revenues, expenditures, net lending, and budget balance. Time-series data from the Palestinian Ministry of Finance and the World Bank’s Worldwide Governance Indicators were analyzed using multiple regression techniques. The results indicate that Rule of Law exhibits statistically significant effects across multiple fiscal dimensions, while Government Effectiveness shows a significant positive impact on public revenues and a marginal effect on budget balance. In contrast, Political Stability, Control of Corruption, Voice and Accountability, and Regulatory Quality do not demonstrate statistically significant effects within the multivariate framework. These findings underscore the importance of strengthening administrative capacity and legal enforcement mechanisms to improve fiscal discipline, particularly in politically fragile environments. Policy implications emphasize enhancing institutional effectiveness and reinforcing legal predictability while supporting broader structural reforms for sustainable public finance management in Palestine. Full article

(This article belongs to the Special Issue Studies on Fiscal Policy in Times of High Debt)

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18 pages, 314 KB

Open AccessArticle

Public Debt Sustainability in the Eurozone: An Empirical Assessment Using Macroeconomic Indicators

by Noah Cheruiyot Mutai, Lawrence Ibeh, Karim Farag, Olufunke Mercy Popoola and James Agbor Okpokiri, Jr.

Economies 2026, 14(2), 53; https://doi.org/10.3390/economies14020053 - 10 Feb 2026

Viewed by 1480

Abstract

This study examines public debt sustainability in the Eurozone by estimating fiscal reaction functions that assess how fiscal balances respond to rising public debt under heterogeneous macroeconomic conditions. Using annual panel data for 20 EU countries from 2000 to 2024, we employ fixed effects, system Generalized Method of Moments (GMM), and nonlinear specifications grounded in the intertemporal budget constraint framework. The results indicate that, under fixed effects, fiscal balances respond negatively to higher debt levels, consistent with the presence of fiscal fatigue. In contrast, dynamic GMM estimates reveal weak or statistically insignificant debt responses, while confirming strong fiscal persistence and a positive role for economic growth. Nonlinear specifications suggest that fiscal responsiveness weakens at high debt levels, with adjustment capacity further strained during major crisis episodes. Inflation and interest rates exert adverse effects on fiscal balances, whereas GDP growth supports fiscal sustainability. In summary, the findings highlight substantial cross-country heterogeneity and raise doubts about the effectiveness of uniform fiscal rules in the European Union, lending support to calls for more flexible and country-specific fiscal frameworks. Full article

(This article belongs to the Special Issue Studies on Fiscal Policy in Times of High Debt)

22 pages, 1304 KB

Open AccessArticle

How Harmful Is a High Share of Public Expenditure in GDP?

by Séverine Menguy

Economies 2025, 13(3), 74; https://doi.org/10.3390/economies13030074 - 13 Mar 2025

Cited by 2 | Viewed by 5967

Abstract

We aim to analyze the potential positive or negative effects of public expenditure on economic growth, as well as their determinants. To this goal, we use a simple theoretical model, which has the specificity to distinguish between public investment and consumption expenditure, and which could be applied to a wide range of developed or developing countries. Regarding public spending, we find that public consumption expenditure usually harms global economic growth, whereas public investment expenditure benefits economic activity: it can increase income per head, provided real returns on capital are not too small. We can also theoretically underline the existence of an inverted U-shaped relation between the variation of public investment or consumption expenditure and economic growth. An increase in public spending would benefit economic growth only up to a maximal variation, which positively depends on real capital returns, but negatively depends on the capitalization of the economy. Regarding fiscal resources, we find that increasing the consumption taxation rate and the share of fiscal resources collected through consumption taxes could benefit global economic growth, even if it is detrimental to private consumption. Full article

(This article belongs to the Special Issue Studies on Fiscal Policy in Times of High Debt)

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