1. Introduction: Government Stimulus in the Economic Policy Toolkit

Government stimulus measures, encompassing deliberate fiscal and occasionally coordinated monetary policy actions, are primarily designed to invigorate economic activity, particularly during periods of recession or sluggish growth.¹ The core objectives traditionally revolve around augmenting aggregate demand, fostering job creation or preservation, and stabilizing volatile financial markets.¹ The underlying premise is that strategic government intervention can effectively catalyze private sector economic activity, thereby pulling an economy out of a downturn or accelerating a slow recovery.²

Historically, the deployment of stimulus packages has been a recurrent theme in economic policymaking. From the large-scale interventions of the New Deal in the United States during the Great Depression ¹ to the more recent, globally coordinated responses to the 2008 financial crisis and the COVID-19 pandemic ¹, governments have consistently turned to stimulus as a critical policy lever. The nature, scale, and composition of these stimulus efforts have, however, evolved significantly over time. This evolution reflects shifts in dominant economic theories, changing political priorities, and the unique characteristics and challenges presented by each economic crisis.

This report will argue that while government stimulus can serve as a potent instrument for mitigating economic downturns and fostering conditions for growth, its ultimate effectiveness is profoundly conditional. Factors such as the specific design of the stimulus measures, the timeliness of their implementation, the prevailing macroeconomic environment—including existing levels of government debt and inflationary pressures—and the precise objectives the stimulus aims to achieve all play critical roles in determining outcomes. The debate surrounding the utility and efficacy of government stimulus is both ongoing and multifaceted, with recent global crises providing a wealth of new empirical evidence that continues to shape academic discourse and future policy approaches. Notably, the very definition and objectives of “stimulus” appear to be broadening. Traditionally focused on short-term aggregate demand management ⁶, there is an increasing tendency for stimulus packages to incorporate elements aimed at achieving long-term structural economic goals. This includes fostering a transition towards a greener economy and enhancing the resilience of national and global supply chains, as evidenced by green components in some COVID-19 recovery packages ⁸ and provisions within the CARES Act aimed at bolstering supply chains.¹⁰ This suggests a paradigm shift where short-term recovery initiatives are increasingly viewed as opportunities to align with, and even accelerate, longer-term strategic economic transformations, moving beyond purely cyclical responses. Consequently, the metrics for evaluating stimulus effectiveness may also need to evolve, incorporating progress on these structural objectives alongside traditional measures of Gross Domestic Product (GDP) and employment.

2. Theoretical Foundations of Fiscal Stimulus

The intellectual underpinnings of government stimulus are diverse, drawing from various schools of economic thought, each offering different perspectives on how and why such interventions might influence economic growth.

Keynesian Economics: Aggregate Demand Management

The primary theoretical basis for modern fiscal stimulus is found in Keynesian economics. This school of thought, originating from the work of John Maynard Keynes, posits that in times of economic underperformance, particularly recessions, an injection of government spending or a reduction in taxes can boost aggregate demand, leading to increased output and income.⁶ Keynesian theory argues that economies can become trapped in a state of underemployment due to insufficient aggregate demand. In such scenarios, where private sector savings may rise and resources lie idle, active government intervention is deemed necessary to “kickstart” the economy.⁷ The core argument is that demand management policies are most potent when an economy’s output is significantly below its full employment potential.⁷

The Fiscal Multiplier Effect: Mechanisms and Determinants

Central to the Keynesian argument for stimulus is the concept of the fiscal multiplier. Developed initially by Keynes’s student Richard Kahn, the multiplier effect suggests that an initial change in government spending or taxation can lead to a proportionally larger change in overall economic output, or GDP.¹¹ For instance, a multiplier of 1.5 would imply that every dollar of government stimulus spending ultimately generates $1.50 in additional economic activity.

The mechanism driving the multiplier is the marginal propensity to consume (MPC) – the fraction of additional income that households spend rather than save.¹¹ When the government injects spending, it becomes income for recipients (individuals or businesses). These recipients then spend a portion of this new income, which in turn becomes income for others, leading to subsequent rounds of spending and income generation throughout the economy.¹¹ The larger the MPC, the larger the multiplier effect.

The actual size of the fiscal multiplier is a subject of considerable debate among economists, with empirical estimates varying widely, often cited in the range of 0.5 to 2.0.¹² Several factors influence its magnitude:

• Type of Stimulus: Direct government purchases of goods and services are often thought to have a larger multiplier than tax cuts, especially those benefiting higher-income households who may have a lower MPC.¹³ Transfers to lower-income households, who tend to have a higher MPC, are also considered relatively effective.¹³
• Economic Conditions: The multiplier is generally believed to be larger when the economy is in a deep recession and interest rates are near the “zero lower bound,” as there are more idle resources and monetary policy has limited room to counteract fiscal expansion.¹²
• Openness of the Economy: In highly open economies, a portion of the stimulus-induced demand may “leak” out in the form of increased imports, reducing the domestic multiplier.
• Financing of Stimulus: How the stimulus is financed (e.g., through borrowing or future taxes) can influence expectations and private sector responses.

The debate over the multiplier’s size is not merely an academic exercise. It has profound implications for assessing the cost-effectiveness of stimulus measures. A high multiplier suggests that stimulus is a powerful and efficient tool, potentially even partially self-financing through the increased tax revenues generated by higher economic activity.¹⁶ Conversely, a low multiplier, particularly one below unity as suggested by some critics ¹⁴, implies that stimulus is costly, adding more to government debt than it contributes to GDP. In an environment of already high national debt ¹⁷, the case for fiscal stimulus becomes significantly more challenging if multipliers are perceived to be low, as the debt incurred per unit of GDP growth is correspondingly higher. This underscores the critical importance of the “targeted” aspect of stimulus design ¹⁵ to maximize the economic impact per dollar spent.

Supply-Side Perspectives on Stimulus

An alternative, and sometimes complementary, perspective comes from supply-side economics. Unlike Keynesianism’s focus on aggregate demand, supply-side policies aim to foster economic growth by increasing the aggregate supply of goods and services.²⁰ This is typically pursued through measures intended to improve the productive capacity of the economy. Key supply-side fiscal policies include:

• Tax Reductions: Lowering marginal tax rates on income, capital gains, and corporate profits is argued to incentivize work, saving, investment, and risk-taking.²⁰ The Laffer Curve posits that in some instances of very high taxation, tax rate cuts could even lead to increased tax revenue by spurring substantial economic growth.²⁰
• Investment in Human and Physical Capital: Government spending on education, healthcare, infrastructure, and research and development (R&D) can enhance productivity.²⁰
• Deregulation: Reducing the burden of government regulations is believed to encourage business formation, expansion, and innovation.²⁰

Supply-siders contend that producers and their willingness to create goods and services are the primary drivers of economic growth, in contrast to the Keynesian emphasis on consumer demand.²¹

Interestingly, the traditional dichotomy between demand-side (Keynesian) and supply-side stimulus appears to be blurring in contemporary policymaking. While Keynesian approaches prioritize rapid demand boosts ⁶ and supply-side policies target longer-term productive enhancements ²⁰, recent stimulus packages increasingly integrate elements of both. For example, investments in green energy infrastructure, often part of modern stimulus proposals ⁸, or funding for technological advancements ²², aim to create immediate jobs and stimulate demand in the short term, while simultaneously building sustainable capacity and enhancing productivity for the long term. This pragmatic evolution suggests a recognition among policymakers that short-term economic relief and long-term structural growth are not always mutually exclusive and can, in fact, be mutually reinforcing if policies are astutely designed.

3. Types and Design of Fiscal Stimulus Measures

Fiscal stimulus can be delivered through various channels, primarily involving changes in government spending or taxation. The specific design of these measures is crucial for their effectiveness, often guided by principles of timeliness, temporariness, and targetedness, and frequently coordinated with monetary policy actions.

Government Spending

Increased government expenditure is a direct way to inject demand into the economy. This can take several forms:

• Direct Purchases of Goods and Services: This includes government investments in public infrastructure such as roads, bridges, public transit, schools, and, increasingly, green energy projects.¹ Spending on scientific research, defense, and other public services also falls into this category. These expenditures directly increase demand for materials and labor.
• Transfer Payments to Individuals: These are payments made directly to households, often with the aim of supporting consumption, especially for those most affected by an economic downturn. Prominent examples include enhanced unemployment benefits and direct economic impact payments (stimulus checks), such as those distributed during the COVID-19 pandemic.²⁵
• Aid to State and Local Governments: Federal grants to sub-national governments can help them maintain essential services (like education and healthcare) and avoid layoffs or tax increases during recessions when their own revenues decline.⁴

The Congressional Budget Office (CBO) found that direct government purchases and transfer payments to states and individuals were among the most effective provisions of the American Recovery and Reinvestment Act (ARRA) in terms of job creation.²⁸

Tax Policies

Tax policies can be adjusted to influence household and business behavior, thereby stimulating economic activity:

• Tax Cuts: Reductions in personal income taxes, payroll taxes, or corporate income taxes aim to increase disposable income for individuals or profits for businesses, encouraging spending and investment.¹
• Tax Rebates: These are one-time payments sent to taxpayers, similar in effect to direct checks but administered through the tax system. The 2008 Economic Stimulus Act included such rebates.⁴
• Tax Incentives: These are targeted tax breaks designed to encourage specific economic activities. Examples include investment tax credits for businesses, R&D tax credits, hiring credits, or incentives for adopting green technologies or making energy-efficient improvements.⁸

Characteristics of Effective Stimulus

To maximize positive impact and minimize long-run costs, fiscal stimulus is ideally designed to be ¹⁵:

• Timely: The stimulus should be implemented rapidly so its effects are felt while the economy is operating below its potential. Delays can render the stimulus ineffective or even counterproductive if it arrives after recovery is underway, potentially leading to economic overheating.¹⁵
• Temporary: Stimulus measures should generally be temporary to avoid contributing to long-term structural deficits and inflation. In the long run, monetary policy is typically the tool for maintaining full employment. Permanent, unfinanced spending increases or tax cuts can reduce national saving, crowd out private investment, and lead to higher long-term interest rates.¹⁵
• Targeted: Stimulus should be directed towards those households and businesses most likely to spend the additional resources quickly, thus maximizing the short-run boost to GDP. This often means focusing on lower-income households, which tend to have a higher marginal propensity to consume.¹³ It should also aim to provide the greatest benefit to those most adversely affected by the economic slowdown.

While the “timely, temporary, targeted” framework provides a useful ideal, its practical application involves inherent trade-offs and political complexities. For instance, achieving “timeliness” often conflicts with precise “targeting.” Broad-based measures like stimulus checks can be disbursed relatively quickly but are less targeted than, for example, infrastructure projects. Conversely, infrastructure spending may have higher long-term multipliers but often suffers from significant planning and implementation lags, as seen with some ARRA projects.¹⁵ Furthermore, making stimulus “temporary” can be politically challenging, as programs that become popular may create constituencies that advocate for their continuation, potentially transforming short-term relief into long-term structural budget commitments. This underscores that effective stimulus design necessitates not only economic expertise but also astute political management and robust implementation capabilities.

Monetary Policy Coordination

Fiscal stimulus is often, though not always, implemented in conjunction with accommodative monetary policy. Central banks can support fiscal efforts by:

• Lowering Interest Rates: Reducing benchmark interest rates makes borrowing cheaper for consumers and businesses, encouraging spending and investment.
• Quantitative Easing (QE): This involves a central bank injecting liquidity into money markets by purchasing assets (like government bonds) without the goal of lowering the policy interest rate.² QE aims to lower longer-term interest rates, ease financial conditions, and signal the central bank’s commitment to maintaining accommodative conditions.³⁰
• Forward Guidance: Central banks can provide communication about their future policy intentions to influence market expectations and borrowing costs.

During the COVID-19 pandemic, major central banks like the U.S. Federal Reserve, the European Central Bank (ECB), and the Bank of England engaged in significant monetary easing to complement fiscal stimulus measures.³²

However, the increasing reliance on such coordinated actions, particularly large-scale QE, is not without potential long-term consequences. It can contribute to a blurring of the lines between monetary and fiscal policy ³⁵, potentially raising concerns about central bank independence. If markets begin to expect central banks to perpetually accommodate fiscal expansions (e.g., by keeping interest rates artificially low even in the face of inflationary pressures from fiscal policy), it could lead to a situation known as “fiscal dominance.” In such a scenario, monetary policy could lose its effectiveness in controlling inflation. The massive expansion of central bank balance sheets resulting from extensive QE might also constrain their ability to respond to future crises. These considerations add another layer of complexity to the design and deployment of comprehensive stimulus strategies.

4. Historical Case Studies: Lessons from Major Economic Events

Examining historical applications of government stimulus provides invaluable lessons on its effectiveness, challenges, and unintended consequences. The responses to the 2008 Global Financial Crisis (GFC) and the COVID-19 pandemic offer rich comparative insights.

The 2008 Global Financial Crisis

The GFC, triggered by a collapse in the U.S. housing market and subsequent turmoil in global financial markets, prompted significant fiscal stimulus efforts worldwide.

• U.S. Response:The United States implemented a two-pronged fiscal response.
  1. The Economic Stimulus Act of 2008, enacted under President George W. Bush, provided approximately $152 billion, primarily in the form of tax rebates to individuals and investment incentives for businesses.⁴
  2. The American Recovery and Reinvestment Act (ARRA) of 2009, signed by President Barack Obama, was a much larger package, ultimately costing around $836 billion (revised from an initial estimate of $787 billion).³⁶ ARRA included a mix of tax relief ($288 billion), aid to state and local governments ($144 billion), and direct spending on infrastructure and science ($111 billion), protecting vulnerable populations ($81 billion), healthcare ($59 billion), education and training ($53 billion), and energy ($43 billion).⁴
• European Response:In contrast to the U.S., the fiscal response in the European Union was generally smaller in scale and relied more heavily on automatic stabilizers (like existing unemployment benefits).38 The European Economic Recovery Plan (EERP) called for a stimulus of about 2% of EU GDP, compared to ARRA’s impact which, combined with other measures, was closer to 10% of U.S. GDP over the 2008-2010 period.38 This more modest EU response was attributed to several factors, including concerns about market reactions to increased deficits in some member states, existing fiscal rules limiting national responses, and the lack of a strong central EU fiscal authority at the time.38
• Assessing Effectiveness:The impact of these stimulus measures remains a subject of debate.
  • Arguments for Effectiveness (Primarily U.S. ARRA):
    • The Congressional Budget Office (CBO) estimated that ARRA raised U.S. GDP by between 0.7% and 4.1% in 2010 and lowered the unemployment rate by 0.4 to 1.8 percentage points in that year.³⁶
    • The Council of Economic Advisers (CEA) under President Obama estimated that ARRA saved or created an average of 1.6 million jobs per year for four years through the end of 2012, cumulating to about 6 million job-years.⁴⁰ They also estimated ARRA raised GDP by 2.4% in 2010.³⁷
    • Economists Alan Blinder and Mark Zandi found that ARRA raised U.S. GDP by over 3% (roughly $500 billion) in 2010 alone and lowered the unemployment rate by 1.4 percentage points that year.³⁷ They argued that without the combined fiscal and monetary policy responses, the U.S. economy might have experienced a downturn comparable to the Great Depression.³¹
    • ARRA’s infrastructure investments led to tangible improvements, such as upgrading over 42,000 miles of roads and nearly 2,700 bridges. Nationwide measures of bridge quality improved following ARRA, with structurally deficient bridges dropping from 9.3% in 2008 to 7.1% by 2014.²⁴
    • The Troubled Asset Relief Program (TARP), though initially controversial, is credited with helping to stabilize the financial system at an ultimate cost to taxpayers far lower than its headline figure.³¹
  • Critical Arguments and Challenges:
    • Critics, such as those from the Heritage Foundation, argue that stimulus spending is generally ineffective, tends to displace private economic activity (crowding out), and that fiscal multipliers are often low (between 0.6 and 1.0, or even negative when government debt is high).¹⁴
    • Some research suggested that the 2008 tax rebates had little impact on stimulating consumption demand, with consumption declining in subsequent months.¹⁴
    • Concerns were raised that ARRA funds were sometimes poorly targeted or that government spending crowded out private projects. For instance, some firms reportedly turned down private-sector work to take on ARRA-funded projects, and some ARRA-created jobs were filled by workers already employed elsewhere.¹⁴
    • A National Bureau of Economic Research (NBER) paper by Feyrer and Sacerdote found mixed results for ARRA: support programs for low-income households and infrastructure spending were highly expansionary, while grants to states for education appeared to create fewer additional jobs. Their estimates suggested a cost per job created of under $100,000 when excluding education spending, rising to $170,000 when including it.⁴¹
  • Long-term Impacts: ARRA had lasting legacies, including fostering greater transparency in government spending (contributing to the DATA Act of 2014) ⁴² and seeding various forward-looking programs that supported long-term economic benefits.²⁴

The COVID-19 Pandemic

The global COVID-19 pandemic triggered unprecedented fiscal and monetary responses worldwide, dwarfing in many cases the scale of the 2008 interventions.

• U.S. Response:The U.S. enacted a series of massive stimulus packages:
  1. The Coronavirus Aid, Relief, and Economic Security (CARES) Act (March 2020): Approximately $2.2 trillion, featuring Economic Impact Payments (EIPs) of up to $1,200 per adult and $500 per child, significantly expanded Unemployment Insurance (UI), and the Paycheck Protection Program (PPP) for small businesses.²⁵
  2. Consolidated Appropriations Act, 2021 (December 2020): Included a second round of EIPs ($600 per tax filer and per child).²⁷
  3. The American Rescue Plan (ARP) (March 2021): Approximately $1.9 trillion, providing further EIPs ($1,400 per person), continued UI enhancements, an expanded Child Tax Credit, and aid to state and local governments.⁴³ In total, over 476 million EIPs amounting to $814 billion were distributed to U.S. households.²⁷ The overall legislative response involved increased federal spending and tax cuts totaling nearly $5.1 trillion, or about 23% of pre-pandemic annual GDP.⁴⁶
• European and UK Responses:
  • Euro Area: Implemented significant discretionary fiscal measures amounting to roughly 3.25% of GDP, supplemented by state loan guarantees and liquidity support measures totaling around 20% of euro area GDP.³³ The focus was on health spending, support for the unemployed and vulnerable groups (e.g., through the SURE program for short-time work schemes), and liquidity provision for businesses.³³ The European Central Bank (ECB) also launched powerful extraordinary monetary policy measures, coordinated with fiscal authorities, to prevent an economic and financial collapse.⁴⁷
  • United Kingdom: The Bank of England cut its key interest rate to 0.1%, initiated a new round of QE, and introduced the Term Funding Scheme with additional incentives for SMEs (TFSME) to encourage bank lending.³⁴ The UK government rolled out extensive business support programs, including job retention schemes (furlough) and loans.³⁴ The regulatory burden on firms was temporarily reduced to allow them to focus on supporting customers.⁴⁸
• Economic Impacts and Outcomes:
  • Consumption, Welfare, and Growth (U.S.): The CARES Act is estimated to have mitigated overall economic welfare losses by about 20% and boosted aggregate consumption by approximately 6 percentage points (with PPP contributing around 4 percentage points and UI/EIPs the remainder).²⁵ The stimulus led to a significant redistribution towards low-income households, who exhibited strong spending responses due to high MPCs and, in some cases, UI benefits exceeding previous earnings.²⁵ U.S. real GDP growth reached 5.7% in 2021, a figure nearly double what Moody’s Analytics had estimated would occur without the ARP, and the U.S. was notably the only major advanced economy to return to its pre-pandemic growth trend by the end of that period.⁴⁵
  • Government Debt (U.S.): The CARES Act alone was projected to increase the U.S. debt-to-GDP ratio by about 12 percentage points above its pre-pandemic level after 18 months, compared to an estimated 3% increase had the stimulus not been enacted.²⁵
  • Inflationary Pressures (U.S.): The role of the large U.S. fiscal stimulus, particularly the ARP, in the subsequent surge in inflation is highly debated.
    • Some analyses, like one from the Chicago Fed, suggested that the inflationary effects from resource pressures via traditional Phillips curve models would be modest and short-lived.⁴⁴
    • Bernanke and Blanchard (former Fed Chair and former IMF Chief Economist, respectively) concluded that initial pandemic-era inflation was primarily driven by shocks to food and energy prices and supply-chain disruptions. However, they found that tight labor market conditions, exacerbated by strong demand, became an increasingly important factor contributing to persistent inflation later in the recovery.⁴⁹
    • Other economists argue that while the ARP likely had some marginal impact, the inflation surge was a global phenomenon driven by international supply chain issues and events like the war in Ukraine, noting that countries with less fiscal support also experienced high inflation.⁴⁵ The Federal Reserve Bank of San Francisco estimated that U.S. fiscal support measures collectively contributed roughly 3 percentage points to inflation in 2021.⁴⁵
    • A study by Williams and Sutanto linked the expansion of the monetary base and the rapid accumulation of public debt during the pandemic to the subsequent inflation.⁵⁰
  • Comparative Performance (U.S. vs. EU): The U.S. experienced a larger initial impact on human health from COVID-19 but suffered a smaller economic contraction compared to the euro area.⁵¹ The U.S. fiscal stimulus was significantly larger in scale than in Europe.⁵² While the euro area labor market showed resilience due to job retention schemes, the U.S. saw sharper swings in employment and unemployment but ultimately a faster return to pre-pandemic output trends.⁴⁵

The political and institutional context clearly played a significant role in shaping these responses. The U.S., with its strong federal fiscal authority, was able to deploy massive and relatively swift stimulus packages. In contrast, the EU’s response, while substantial, was often more complex and somewhat slower, reflecting the need for coordination among member states and adherence to existing fiscal frameworks, leading to a different composition of support (e.g., greater reliance on loan guarantees and EU-level mechanisms like the SURE program).³³ This divergence highlights that “optimal” stimulus design conceived in economic theory can be heavily constrained or modified by the realities of differing governance structures and political landscapes.

Furthermore, the evaluation of these stimulus packages reveals an evolving understanding of what constitutes “success.” While traditional metrics focus on GDP growth and employment figures ²⁸, analyses of the CARES Act, for example, also emphasized its impact on household welfare and its distributional consequences.²⁵ The American Rescue Plan was defended not only on its growth effects but also for its role in preventing a prolonged weak job market and fostering a surge in entrepreneurship.⁴⁵ This suggests a broadening of criteria by which policymakers and the public assess stimulus effectiveness, incorporating wider socio-economic outcomes beyond simple macroeconomic aggregates. This complicates straightforward cost-benefit analyses and adds further layers to the ongoing debate about the appropriate role and design of government stimulus.

To provide a clearer overview, the following table summarizes key aspects of major stimulus packages:

Table 1: Comparative Analysis of Major Stimulus Packages (2008 GFC vs. COVID-19 Pandemic)

Crisis Event	Region/Country	Key Stimulus Legislation/Programs	Announced Size (Approx.)	Primary Components	Reported/Estimated GDP Impact (Range)	Reported/Estimated Employment Impact (Range)	Notable Inflationary Impact	Key Criticisms/Challenges
2008 GFC	US	Economic Stimulus Act of 2008; American Recovery and Reinvestment Act (ARRA) 2009	$152B (ESA08); $836B (ARRA09) 4	Tax rebates, business incentives (ESA08); Tax relief, state/local aid, infrastructure, energy, healthcare, education (ARRA) 4	ARRA: +0.7% to +4.1% in 2010 (CBO) 36; +3% in 2010 (Blinder/Zandi) 37	ARRA: Lowered unemployment by 0.4-1.8pp in 2010 (CBO) 36; 1.6M jobs/year for 4 years (CEA) 40	Low/No significant direct inflationary impact attributed.	Timeliness of infrastructure spending; debates on multiplier size; effectiveness of tax rebates; crowding out concerns.14
2008 GFC	Eurozone/EU	European Economic Recovery Plan (EERP); National measures	~2% of EU GDP (EERP) 38	Primarily national spending, some EU coordination; reliance on automatic stabilizers 38	Generally considered less impactful than US due to smaller scale.	Less direct job creation attributed to coordinated stimulus compared to US.	Low/No significant direct inflationary impact attributed.	Smaller scale; coordination challenges among member states; fiscal rule constraints; concerns over sovereign debt in some nations.38
COVID-19 Pandemic	US	CARES Act (2020); Consolidated Appropriations Act (2021); American Rescue Plan (ARP) (2021)	$2.2T (CARES) 25; $1.9T (ARP) 44; Total ~$5.1T (23% of pre-pandemic GDP) 46	Direct payments, expanded unemployment insurance, Paycheck Protection Program, aid to states, child tax credit 25	ARP: Significant boost, US real GDP grew 5.7% in 2021.45 CARES: Boosted consumption by ~6pp.25	Rapid recovery in employment from pandemic lows.	Debated: Contributed to inflation surge, estimates vary (e.g., SF Fed ~3pp in 2021).44	Scale leading to inflationary concerns; targeting of some programs (PPP); large increase in national debt.25
COVID-19 Pandemic	Eurozone/EU	National measures; SURE program; NextGenerationEU (inc. RRF)	Discretionary fiscal: ~3.25% GDP; Loan guarantees: ~20% GDP (initial) 33; NGEU: €750B (2018 prices)	Job retention schemes, health spending, business liquidity, public investment (via RRF).33	Supported recovery, avoided deeper contraction. ECB measures critical.47	Maintained employment through job retention schemes, resilient labor market despite GDP fall.51	Inflation rose, but attributed more to global factors (energy, supply chains) than in US.45	Heterogeneity in national responses and debt impacts; ongoing implementation of NGEU funds.33
COVID-19 Pandemic	UK	Various government support schemes; Bank of England measures	Significant fiscal support (e.g., furlough scheme); BoE rate cuts, QE 34	Job retention, business loans/grants, healthcare spending; Monetary easing 34	GDP saw sharp fall then recovery; BoE noted economy more resilient than expected by some.48	Furlough scheme protected millions of jobs.	Inflation rose significantly, similar to other advanced economies.	Concerns over debt sustainability; long-term productivity impacts from diverted investment.48

5. The Debate: Arguments For and Against Government Stimulus

The use of government stimulus as a tool for economic management is one of the most enduring debates in macroeconomics. Proponents and critics offer compelling arguments, often supported by differing theoretical frameworks and interpretations of historical evidence.

Proponents’ Arguments:

Advocates of fiscal stimulus generally highlight its potential to mitigate the negative impacts of economic downturns and accelerate recovery. Key arguments include:

• Boosting Aggregate Demand and Output: The central Keynesian argument is that during recessions, when private consumption and investment falter, government spending or tax cuts can inject necessary demand into the economy, leading to increased production and higher GDP.⁶ Historical examples like the ARRA and the COVID-19 stimulus packages are often cited by proponents as having prevented deeper recessions or hastened economic recovery.³¹
• Job Creation and Preservation: By stimulating demand, government intervention can lead to the creation of new jobs and the preservation of existing ones that would otherwise be lost, thereby reducing unemployment and its associated social costs.¹ The CBO’s analysis of ARRA, for instance, estimated that it created or saved millions of job-years.²⁸
• Preventing Deeper or Longer Recessions: Timely and sufficiently large stimulus can interrupt the downward spiral of falling demand, declining investment, job losses, and business failures that can characterize severe recessions. This was a key rationale for the aggressive policy responses during both the 2008 GFC and the COVID-19 pandemic.⁴
• Providing a Social Safety Net and Supporting Welfare: Transfer payments, such as unemployment benefits and direct aid to households, protect vulnerable populations during periods of economic hardship. This not only alleviates human suffering but also helps maintain a baseline level of consumption, which supports aggregate demand.⁴
• Potential for Partial Self-Financing: In some circumstances, the economic growth spurred by stimulus can lead to increased tax revenues, which may partially offset the initial cost of the stimulus measures.² Additionally, if stimulus leads to higher inflation, it can erode the real value of existing government debt, making it relatively easier to service.¹⁶

Critics’ Arguments:

Opponents of fiscal stimulus raise concerns about its effectiveness, efficiency, and potential negative side effects. Common criticisms include:

• Inflationary Risks: A primary concern is that excessive demand stimulus, particularly if implemented when the economy is near full capacity or facing supply constraints, can lead to demand-pull inflation.¹ This was a significant point of debate regarding the large stimulus packages during the COVID-19 pandemic.
• Increased National Debt: Fiscal stimulus is typically financed through government borrowing, which adds to the national debt. Persistently high levels of debt can lead to adverse long-term consequences, including higher interest rates on government bonds (increasing debt servicing costs), reduced fiscal space for future policy responses, and potential concerns about debt sustainability.¹
• Crowding Out Private Investment: Government borrowing to finance deficits can increase demand for loanable funds, potentially driving up interest rates. Higher interest rates can make it more expensive for private businesses to borrow and invest, thereby “crowding out” private investment.² Furthermore, direct government spending in certain sectors might compete with or displace private sector projects.
• Ricardian Equivalence: This theory, dating back to David Ricardo, suggests that rational taxpayers may anticipate that current government borrowing (to finance stimulus) will necessitate higher future taxes. In response, they might increase their current savings to prepare for these future tax liabilities, thereby reducing current consumption and offsetting the intended stimulative effect of the policy.²
• Inefficiency and Misallocation of Resources: Critics argue that government spending decisions may be influenced by political considerations rather than purely economic ones, leading to inefficient allocation of resources or investment in unproductive projects (“pork-barrel” spending).⁴ Stimulus might also be slow to implement or may prop up inefficient industries that should otherwise contract or restructure.²
• Limited or Uncertain Multiplier Effects: Some economists, drawing on empirical studies, contend that fiscal multipliers are often smaller than proponents claim, particularly for certain types of stimulus (e.g., tax cuts for high-income individuals) or in specific economic environments (e.g., high debt levels or open economies).¹³ If the multiplier is less than one, the stimulus adds less to GDP than its cost to the government.
• Delaying Necessary Economic Adjustments: By artificially propping up demand or supporting struggling industries, stimulus measures might delay or impede necessary structural adjustments within the economy, such as the reallocation of resources from declining sectors to growing ones.²

The ongoing debate over stimulus effectiveness is often complicated by the inherent difficulty in isolating the specific impact of fiscal policy from a multitude of other concurrent economic factors and policy interventions. For example, estimating fiscal multipliers is notoriously challenging because governments typically implement stimulus measures precisely when the economy is already performing poorly, making it difficult to establish a clear causal link without sophisticated econometric techniques.¹² During the COVID-19 pandemic, fiscal stimulus was deployed alongside unprecedented monetary easing by central banks, global supply chain disruptions, and a unique public health crisis that directly impacted labor supply and consumption patterns.⁴⁹ Attributing economic outcomes solely to fiscal stimulus in such a complex environment is fraught with difficulty. This lack of definitive empirical “proof” often leads to persistent disagreements among economists, with differing conclusions frequently stemming from the use of different economic models, assumptions, and interpretations of the data.

Beyond the purely economic mechanics, the political economy of stimulus plays a crucial role in shaping its design, implementation, and public perception of its success. Decisions about who benefits from stimulus (e.g., through targeted tax cuts or spending programs) and who ultimately bears the cost (through current or future taxation, or the effects of inflation and debt) have significant distributional consequences. The choice between different types of stimulus, such as tax cuts often favored by supply-side proponents ²¹ versus direct government spending or transfers often advocated by Keynesians ⁷, frequently reflects underlying ideological preferences. Public discourse surrounding stimulus measures—often framed through partisan lenses as either “wasteful government spending” or “essential economic support”—can heavily influence public opinion and, consequently, the political willingness to employ such tools in future economic crises.

Table 2: Arguments For and Against Fiscal Stimulus: A Summary

Argument Type	Specific Argument	Theoretical Basis	Supporting Evidence/Examples (Selected Snippets)	Counterarguments/Rebuttals
Pro-Stimulus	Boosts Aggregate Demand & Output	Keynesian Multiplier 6	ARRA, COVID stimulus prevented deeper recessions 31	Multipliers may be small or negative; crowding out.14
	Job Creation and Preservation	Increased demand leads to hiring 1	ARRA created/saved millions of job-years (CBO, CEA) 28	Jobs may be displaced from private sector; poor targeting.14
	Prevents Deeper/Longer Recessions	Interrupts downward economic spiral 4	Aggressive 2008 & COVID responses arguably prevented depressions 31	Stimulus may delay necessary market corrections.2
	Social Safety Net & Welfare	Protects vulnerable populations 4	CARES Act mitigated welfare losses, supported consumption for low-income 25	Can create disincentives to work if overly generous or prolonged.
	Potential for Partial Self-Financing	Higher growth boosts tax revenue; inflation erodes debt 2	Some models suggest deficits can indirectly pay for themselves under specific conditions.16	Relies on optimistic assumptions about growth, inflation, and central bank responses; often doesn’t fully cover costs.16
Anti-Stimulus	Inflationary Risks	Excess demand pulls prices up 1	COVID-19 stimulus followed by inflation surge 45	Inflation often global, driven by supply shocks, not just domestic demand 45; monetary policy is primary inflation tool.
	Increased National Debt	Deficit-financed spending accumulates debt 1	US debt-to-GDP rose significantly post-2008 and post-COVID 17	Debt concerns may be overstated if growth is strong or interest rates low; stimulus can prevent costlier long-term damage.
	Crowding Out Private Investment	Government borrowing raises rates; displaces projects 2	Theoretical concern; some evidence of firms shifting from private to ARRA projects.14	Crowding out less likely in deep recessions with idle resources and low interest rates; public investment can “crowd in” private investment.
	Ricardian Equivalence	Households save in anticipation of future taxes 2	Theoretical argument; empirical evidence mixed and debated.	Assumes perfect foresight and rationality not always present; liquidity constraints mean many spend stimulus immediately.25
	Inefficiency and Misallocation	Political motives; slow implementation; waste 4	Reports of misused/poorly targeted ARRA funds.14	Transparency and oversight can mitigate (e.g., DATA Act post-ARRA 42); urgent needs may outweigh some inefficiency.
	Limited Multiplier Effects	Stimulus adds less to GDP than its cost 14	Some studies show multipliers < 1, especially for high-income tax cuts or in high debt scenarios.13	Multiplier size is context-dependent and varies by stimulus type; larger in recessions with accommodative monetary policy.12
	Delaying Necessary Adjustments	Props up inefficient industries/practices 2	Concern that stimulus might slow reallocation of resources.	Social costs of rapid, unmanaged adjustment can be high; stimulus provides a buffer.

6. Current Constraints on Fiscal Stimulus (2024-2025 Market Conditions)

The environment for deploying fiscal stimulus in 2024 and 2025 is markedly different from previous crisis periods, characterized by a confluence of factors that significantly constrain policymakers’ latitude and increase the potential risks associated with large-scale interventions.

Elevated National Debt Levels and Servicing Costs

A primary constraint is the historically high level of national debt in many advanced economies. Global public debt is on an upward trajectory, projected to approach 100% of GDP by the end of the decade, a level surpassing even the peaks seen during the COVID-19 pandemic.¹⁸ In the United States, for instance, the debt-to-GDP ratio stood at 123% in Fiscal Year 2024.¹⁷ Such high debt burdens have several implications for fiscal stimulus:

• Reduced Effectiveness: Some economic research suggests that the efficacy of fiscal stimulus diminishes, and fiscal multipliers may even turn negative when government debt-to-GDP ratios are excessively high (e.g., exceeding thresholds often cited between 60% and 90%).¹⁴ An NBER working paper indicates that the initial stages of financial repression—policies that channel funds to the government at below-market rates—may begin when government debt surpasses 100% to 120% of GDP.⁵⁴
• Higher Servicing Costs: Increased government debt, particularly in a rising interest rate environment, leads to higher debt servicing costs. These increased interest outlays can “crowd out” other essential public spending on social programs, public investments, or even future stimulus measures.¹⁸ For example, one analysis of a hypothetical U.S. fiscal bill projected that the 10-year Treasury yield would be 1.2 percentage points higher by 2054 due to the increased debt load.⁵³
• Increased Market Scrutiny: Governments with high debt levels may face greater scrutiny from financial markets, potentially leading to higher borrowing costs (risk premia) if further large-scale borrowing is perceived as unsustainable.

Persistent Inflationary Pressures and Central Bank Responses

Although inflation has moderated from its recent peaks, it remains a significant concern for policymakers in 2024-2025.18 Analysis by Bernanke and Blanchard pointed to tight labor markets as an increasingly important driver of persistent inflation in the post-COVID era, following initial shocks from energy prices and supply chains.49 In response, major central banks, including the U.S. Federal Reserve, the European Central Bank, and the Bank of England, have undertaken significant monetary tightening or are maintaining a restrictive policy stance to bring inflation back to their targets.32

This monetary policy environment severely complicates the use of traditional demand-side fiscal stimulus:

• Risk of Exacerbating Inflation: Additional fiscal stimulus that boosts aggregate demand could counteract central bank efforts to cool inflation, potentially leading to a wage-price spiral and requiring even more aggressive monetary tightening. This could, in turn, increase the risk of a recession.
• Policy Conflict: The U.S. Federal Reserve, for example, has expressed caution about premature interest rate cuts due to ongoing inflation risks, particularly in light of uncertainties such as potential tariffs that could add to price pressures.⁵⁶ The FOMC’s projection for core PCE inflation in 2025 stood at 2.8% as of its March 2025 meeting ⁵⁶, still above the 2% target.

Geopolitical Uncertainty and its Economic Implications

The global landscape in 2024-2025 is characterized by heightened geopolitical tensions, including ongoing trade policy shifts and regional conflicts. These factors introduce significant economic uncertainty and can directly constrain fiscal policy ¹⁸:

• Weakened Growth Prospects: Trade disputes and geopolitical instability can disrupt global trade flows, dampen business investment, and reduce overall economic growth, thereby shrinking the tax base and increasing demands for fiscal support.
• Increased Spending Pressures: Geopolitical tensions may necessitate increased government spending in areas such as defense or aid to affected sectors, further straining already tight public finances.¹⁸
• Supply Shocks: Conflicts can lead to supply shocks, particularly in commodity markets (e.g., energy and food), which can fuel inflation and complicate economic management. Fiscal stimulus is generally ill-suited to address supply-driven inflation.
• Financial Market Volatility: Geopolitical events can trigger financial market volatility, leading to tighter financial conditions and increased borrowing costs, especially for emerging market and developing economies that are sensitive to shifts in U.S. fiscal policy and long-term interest rates.⁵⁵

Perspectives from International Institutions and Research Bodies

Leading economic institutions are advising caution and a shift in fiscal strategy:

• The International Monetary Fund (IMF) has been urging countries to prioritize fiscal prudence, rebuild fiscal buffers, and implement credible consolidation plans, especially those with limited fiscal space. The IMF highlights the substantial risks posed by geoeconomic uncertainty to government deficits and debt levels.¹⁸
• Central banks, such as the Central Bank of Ireland, acknowledge the progress in reducing inflation but remain focused on achieving their 2% targets. They note the downgrading of growth projections due to trade policy uncertainties and market volatility, emphasizing the need to enhance long-term economic resilience and address underlying fiscal and capacity vulnerabilities.³²
• The Brookings Institution’s Hutchins Center Fiscal Impact Measure indicated that U.S. fiscal policy was a drag on GDP growth in the first quarter of 2025, primarily due to declining federal purchases, and is projected to remain so through early 2027, reflecting the effects of tariffs and broader policy uncertainty.⁵⁷
• Research from the Peterson Institute for International Economics (PIIE) acknowledges the protective role of massive fiscal expansion during the COVID-19 pandemic in the U.S. but also cautions that spurring demand too strongly when the economy is near full employment can lead to more inflation than output growth.⁴⁶

The confluence of these factors—high debt, persistent (though moderating) inflation, tight monetary policy, and significant geopolitical instability—creates a uniquely challenging milieu for fiscal stimulus. Policymakers’ “fiscal space” (the room to increase spending or cut taxes without endangering market access or debt sustainability) is significantly reduced compared to the onset of the 2008 or COVID-19 crises. The risks associated with large-scale, traditional demand-boosting stimulus are considerably higher. This implies that any fiscal interventions considered in the current environment must be exceptionally well-targeted, likely smaller in scale, or fundamentally different in nature—perhaps focusing more on alleviating specific supply-side bottlenecks or investing in long-term productive capacity rather than providing broad-based demand support.

Indeed, the constraints on conventional fiscal policy, coupled with ongoing pressures for government action in various domains, may lead to increased consideration of less conventional measures if economic conditions deteriorate significantly while fiscal deadlock persists. The NBER working paper highlighting the link between high debt levels (100-120% of GDP) and the potential onset of “financial repression” ⁵⁴ is particularly salient. Financial repression encompasses policies that direct funds to the government at below-market interest rates, essentially imposing an implicit tax on savers and financial institutions. While such measures can help manage large debt burdens, they also introduce significant economic distortions. The possibility of governments being tempted by such approaches, should traditional fiscal and monetary tools prove too risky or ineffective, represents a subtle but important potential long-term consequence of the current constrained fiscal environment.

7. The Future of Government Stimulus: Evolving Priorities and Strategies

As the global economy navigates a complex post-pandemic landscape characterized by new structural challenges and evolving policy paradigms, the future of government stimulus is likely to shift beyond traditional counter-cyclical demand management. Emerging priorities include fostering green transitions, enhancing supply chain resilience, promoting technological innovation, and recognizing the growing need for international policy coordination.

Investment in Green Technology and Sustainable Infrastructure

A significant trend is the increasing use of fiscal policy and public investment to accelerate the transition to a greener economy.⁸ This approach aims to address climate change while simultaneously creating jobs and enhancing long-term energy security and economic competitiveness. Governments are employing a variety of tools:

• Subsidies, Tax Rebates, Loans, and Grants: These are directed towards renewable energy generation (solar, wind), energy-efficient buildings, sustainable agriculture, and the development of electric vehicle (EV) infrastructure.⁸ Global investment in green technology reached $1.77 trillion in 2023, with renewable energy and electric transportation being major components.²⁹
• Incorporation into Broader Stimulus Packages: Recent examples include the European Union’s Recovery and Resilience Facility (RRF), which mandates that at least 37% of national expenditure be allocated to green initiatives, and the U.S. Infrastructure Investment and Jobs Act, which includes substantial funding targeted at sustainability.⁸

However, challenges remain. The scale of green stimulus measures has often been criticized as insufficient to meet climate goals.⁸ Moreover, policy direction can be inconsistent; for example, hypothetical policy shifts away from supporting renewables could significantly increase electricity prices and slow the transition, as modeled in analyses of potential changes like the “One Big Beautiful Bill Act” (OBBBA) scenario.⁶⁰

Enhancing Supply Chain Resilience and Technological Innovation

The COVID-19 pandemic starkly exposed vulnerabilities in global supply chains, prompting a policy focus on enhancing their resilience.¹⁰ Fiscal stimulus and public investment can play a role in:

• Direct Support and Strategic Planning: The U.S. CARES Act, for instance, included provisions impacting supply chains, such as loans for businesses, support for the U.S. Postal Service (critical for last-mile logistics), and the creation of a task force to evaluate supply chain vulnerabilities.¹⁰
• Investment in Technological Infrastructure: Broader investments in physical and digital infrastructure—such as highways, power grids, high-speed internet, 5G networks, and data centers—are crucial for supporting economic growth, improving efficiency, and fostering innovation across all sectors, including supply chains.²²
• Fostering Supply Chain Innovation: This involves encouraging the adoption of technologies like automation (robotics and AI in manufacturing and warehousing), AI-driven demand forecasting, blockchain for transparency and traceability, and sustainable sourcing practices.⁶² Public-private partnerships can be instrumental in accelerating research and development in critical areas like artificial intelligence, green energy, and bio-health, which have significant implications for supply chain modernization.⁶³

The Role of International Coordination

Many of the most pressing contemporary challenges—pandemics, climate change, systemic financial crises, and ensuring food security—are global in nature and benefit from, or even necessitate, coordinated international policy responses.

• Lessons from past crises, such as the 2008 GFC and the COVID-19 pandemic, highlight the varying degrees of international coordination in fiscal responses. During the 2008 crisis, the Council on Foreign Relations (CFR) noted that deficit countries tended to propose larger stimulus packages than surplus countries, creating a risk of exacerbating global imbalances. The IMF also called for a globally coordinated fiscal stimulus at that time.⁶⁵ The responses to COVID-19 also saw varied approaches between the U.S. and Europe, offering lessons for future coordination.⁵²
• For issues like food supply chain resilience, international cooperation is vital for harmonizing safety standards, enabling technology transfer, fostering inclusive dialogue among stakeholders, and making joint investments in infrastructure.⁶¹
• Similarly, achieving global climate goals requires coordinated efforts in green investment and technology dissemination.

Policy Recommendations from Think Tanks

Prominent research institutions continue to analyze and shape the debate on fiscal policy:

• The Brookings Institution’s Hutchins Center on Fiscal and Monetary Policy focuses on measuring the real-time fiscal impact on economic growth and draws lessons from past events, such as their “Recession Remedies” series evaluating the COVID-19 response. Their current analysis suggests U.S. fiscal policy is acting as a drag on growth, influenced by factors like tariff policies and uncertainty.⁵⁷
• Scholars at the Peterson Institute for International Economics (PIIE), including Olivier Blanchard, analyze fiscal policy as a stabilization tool. Their research emphasizes that while the massive fiscal expansion during the pandemic protected households and output, spurring demand too aggressively near full employment can have a more significant impact on inflation than on output.⁴⁶
• The Council on Foreign Relations (CFR) examines fiscal policy within the broader context of U.S. foreign relations and global economic stability, highlighting how domestic U.S. fiscal decisions can have significant international repercussions.³

The future trajectory of government stimulus appears to be shifting towards a more “qualitative” approach. Given the constraints of high debt and persistent inflation discussed earlier, the focus is increasingly not just on the aggregate amount of spending, but on what that spending is directed towards. Strategic investments in areas like green technology, digital infrastructure, and supply chain resilience offer the potential for dual benefits: providing targeted short-term economic support while simultaneously addressing long-term structural challenges and enhancing productive capacity. This represents a move towards a “smart stimulus” model that seeks to improve the supply side of the economy, potentially yielding higher long-run growth and addressing some of the criticisms leveled against traditional stimulus as being purely consumptive or inefficient.

However, the success of such future-oriented stimulus initiatives will be heavily contingent on overcoming significant implementation challenges. Many of these ambitious investments, such as developing advanced geothermal energy ⁶⁰ or undertaking large-scale infrastructure modernization ²³, require substantial private capital, technological expertise, and innovation. This necessitates a new paradigm of public-private collaboration, where government acts more as a catalyst, risk-mitigator, and strategic partner rather than the sole funder or implementer.⁸ Aligning private sector incentives with broader public goals in these complex domains will be a critical hurdle. Furthermore, ensuring that the benefits of these transformative investments are equitably distributed—for example, by ensuring that new green jobs are accessible to all segments of the workforce and that digital infrastructure upgrades reach underserved communities ²³—will require careful and proactive policy design that goes well beyond the mere allocation of funds. Without such considerations, there is a risk that these future-oriented stimulus efforts could inadvertently exacerbate existing inequalities.

8. Conclusion: Navigating the Complexities of Stimulus for Sustainable Growth

The role of government stimulus in economic growth is a dynamic and often contentious subject. As this report has detailed, fiscal interventions can be powerful tools, yet their effectiveness is far from guaranteed, hinging critically on a confluence of factors including design, timing, the prevailing economic conditions, and the specific objectives pursued.

Historical evidence, particularly from the 2008 Global Financial Crisis and the COVID-19 pandemic, provides a mixed ledger. Stimulus packages have been credited with preventing deeper economic collapses, accelerating recoveries, and providing crucial support to households and businesses.³¹ However, they have also faced criticisms regarding their inflationary impacts, contributions to rising national debt, potential for crowding out private activity, and questions about the true magnitude of their multiplier effects.² The debate is ongoing, complicated by the difficulty of isolating the precise effects of stimulus amidst myriad other economic variables.

In the current economic environment of 2024-2025, characterized by elevated public debt, persistent (though moderating) inflation, and significant geopolitical uncertainty ¹⁸, the latitude for deploying large-scale, traditional demand-side stimulus is considerably constrained. The risks of exacerbating inflation or further destabilizing public finances are heightened. This calls for a nuanced and cautious approach to fiscal policy.

Policymakers should prioritize:

1. Targeted and Strategic Interventions: Rather than broad-based demand stimulus, fiscal efforts should focus on addressing specific market failures, alleviating supply-side bottlenecks, and investing in areas that enhance long-term productive capacity. This includes strategic investments in green technology, sustainable infrastructure, technological innovation, and supply chain resilience, which can offer dual benefits of short-term support and long-term structural improvement.⁸
2. Strengthening Fiscal Frameworks: Governments need to focus on rebuilding fiscal buffers and enhancing the credibility of their fiscal frameworks. This involves prudent fiscal management during non-crisis periods to create the necessary “fiscal space” to respond effectively to future shocks.¹⁸
3. Evidence-Based Policy Design and Adaptability: The principles of “timely, temporary, and targeted” stimulus remain relevant, though their practical application requires careful navigation of inherent trade-offs.¹⁵ Robust monitoring and evaluation of fiscal interventions are essential to learn from experience and adapt policies as economic conditions and our understanding of their impacts evolve.¹
4. Enhancing International Cooperation: Given the interconnectedness of the global economy and the transnational nature of many contemporary challenges (climate change, pandemics, supply chain disruptions), fostering international cooperation on fiscal and economic policies is crucial for managing cross-border spillovers and achieving shared global objectives.³
5. Investing in Data and Analytical Capacity: To improve the design and effectiveness of future stimulus measures, continuous investment in high-quality economic data and advanced analytical capabilities is necessary. This will enable policymakers to better understand the real-time impacts of interventions and make more informed decisions.

In essence, the role of government stimulus is undergoing a significant evolution. While its traditional function as a counter-cyclical tool for managing aggregate demand remains, there is a clear trend towards leveraging fiscal policy as a more strategic instrument aimed at shaping long-term economic trajectories, particularly in areas critical for future prosperity such as environmental sustainability and technological advancement. However, the application of such stimulus is increasingly circumscribed by challenging macroeconomic realities. Navigating this complex landscape successfully will require greater precision in policy design, a forward-looking perspective that integrates short-term needs with long-term goals, and a commitment to international collaboration to foster sustainable and equitable growth on a global scale.