Does Fiscal Policy Affect Financial Development? The Case of Comparative Country

This study examines the relationship between fiscal policy and financial development in developed and developing countries from 1990 to 2021. The objective is to investigate the impact of fiscal policy on financial development by employing panel data analysis. The empirical analysis focuses on G7 and D8 countries, using the Konya (2006) Panel Causality Test and Hatemi-J (2012) Panel Causality Test. The IMF Financial Development Index indicates financial development, while fiscal policy variables include tax revenue, public debt, and public expenditure. The findings show that when the asymmetric effect is not considered, there is a causal relationship between the variables in fewer countries. However, a causal relationship is found in more countries when the asymmetric effect is considered. The impact of changes in fiscal policy on financial development may not always be in the same direction or magnitude, as they can vary depending on the country and specific circumstances.