Finland faces chronic fiscal deficits, rising public debt, and weak economic growth, making fiscal consolidation an urgent priority. This report reviews the international research literature on fiscal multipliers and consolidation programs and estimates fiscal multipliers for categories of public expenditure and taxation in Finland using time-series methods, drawing on a new quarterly dataset for 1999–2025 compiled by Statistics Finland. Based on the key empirical findings of this study, the expenditure multiplier of fiscal policy in Finland is relatively large, and the tax multiplier is remarkably large, which is likely reinforced by the institutional environment of the country, namely, the high tax-to-GDP ratio and its euro area membership. Among expenditure categories, public investment carries the largest multiplier, making cuts to it especially costly for the economy. Increases in consumption and corporate income taxes also seem to generate large output losses. The results highlight a central tension in economic policy: stabilising public finances requires fiscal consolidation, but consolidation weakens economic growth in the short run. Therefore, the effects of fiscal consolidation depend crucially on its composition, timing, and supporting policy measures. Fiscal consolidation should not be seen merely as a combination of expenditure cuts and tax increases, but as a broader economic policy program in which consolidation is combined with reforms that strengthen economic growth, employment, competitiveness, and the long-term sustainability of public finances.
Government’s research activities 2026:3.
