Fiscal Multipliers in Developing Economies: Evaluating the Economic Impact of Infrastructure vs. Social Transfer Spending

Abstract

Fiscal multipliers—defined as the change in national income resulting from a change in government expenditure—play a central role in shaping macroeconomic policy in developing economies. Yet, the magnitude and effectiveness of these multipliers vary significantly depending on the type of spending undertaken. This manuscript evaluates the comparative economic impact of infrastructure spending and social transfer spending in developing countries, drawing on empirical evidence, theoretical frameworks, and cross‑country experiences. While infrastructure investment often yields higher long‑run multipliers due to productivity gains and crowd‑in effects, social transfers generate immediate consumption‑driven multipliers that are crucial during downturns and crises. The study argues that the optimal fiscal strategy for developing economies requires a balanced approach that recognizes the complementary nature of both spending types. The paper concludes with policy recommendations for designing countercyclical fiscal interventions that maximize growth, equity, and resilience.