The effect of fiscal policy fluctuations on economic growth in G7 and E7 countries: Panel ARDL analysis

Fiscal policy is frequently used by both developing countries and developed countries, especially for economic growth targets. In addition, fiscal policy is usually used to eliminate the negative effects of crises, especially after the Great Depression. Therefore, it is important to investigate the effect of fiscal policy, which consists of three main factors: government expenditure, government revenue and government debt, on economic growth. In addition, fiscal policy fluctuations are as important a factor as fiscal policy in terms of both the effectiveness of fiscal policy and ensuring economic growth. Because, fluctuations in fiscal policy can have macroeconomic consequences, or they can be linked to financial crises. The aim of the study is to examine the impact of fiscal policy fluctuations on economic growth and to contribute to the literature by covering the E7 countries. Moreover, comparing the fiscal policy effectiveness of G7 countries and E7 countries together increases the importance of the study. Because, these two groups of countries within the G20 countries are both economic rivals and economic cooperation with each other. In this study, the effect of fiscal policy and fiscal policy fluctuations on economic growth in G7 countries and E7 countries was investigated using the Panel ARDL method. The findings show that, for both country groups, the deviations that occurred in the short term disappeared within an average of 3 years. While G7 countries are negatively affected by fluctuations in fiscal policy, E7 countries are generally not affected by these fluctuations. Government revenue positively affects economic growth in both G7 and E7 countries. While the effect of public expenditures on economic growth is positive in E7 countries, the effect of public debt on economic growth is negative for both country groups. KEY WORDS: Fiscal Policy Fluctuations, Government Expenditure, Government Revenue, Government Debt, Panel ARDL Analysis