IMPACT OF GOVERNMENT FISCAL POLICY ON ECONOMIC GROWH AND STABILITY

Abstract

thesis explores the impact of government fiscal policy on economic growth and stability in Nepal, focusing on government expenditure, foreign direct investment (FDI), tax revenue, budget deficit, and public debt over the period from 2003/04 to 2022/23. Utilizing descriptive and causal-comparative research designs, the study applies descriptive statistics, correlation analysis, and regression analysis to assess the relationships between these fiscal variables and GDP. The analysis reveals a moderate positive correlation between government expenditure and GDP (r = 0.581, p < 0.01) and a strong positive correlation between tax revenue and GDP (r = 0.700, p < 0.01), indicating that higher government spending and tax revenues are associated with increased economic growth. The regression analysis highlights that government expenditure has a marginally significant positive effect on GDP (coefficient = 0.232658, p = 0.08641), suggesting a potential but not strongly significant contribution to economic growth. In contrast, FDI and tax revenue do not show statistically significant effects on GDP, while the budget deficit also lacks a significant impact. Public debt is found to have a statistically significant negative effect on GDP (coefficient = -0.09929, p = 0.046671), indicating that higher levels of public debt are associated with lower economic growth. Overall, the study underscores that government expenditure and public debt are significant factors influencing GDP growth in Nepal, while the effects of FDI, tax revenue, and the budget deficit are less pronounced. The findings emphasize the need for effective fiscal management and a balanced approach to spending and debt to support sustainable economic growth. Future research could further investigate the mechanisms through which these variables affect GDP and explore additional factors that may influence economic performance.