<p>Not only do economies suffer from financial crises, but also economies encounter unfavorable effects resulting from health crises. On a global level, these crises induce severe unprecedented disruptions to the economies and profound effects on financial markets. The COVID-19 pandemic serves as a striking example, as it led to severe economic downturns and volatility in financial markets worldwide. Although the trajectory of the virus differed in each country, there was a universal need for prompt and effective policy responses. Fiscal policies were embraced to mitigate the detrimental effects of the pandemic on economies. Therefore, this research underlines the pivotal role of fiscal policies during times of global economic upheaval, specifically during COVID-19 period, emphasizing the need for adaptive strategies that align with the complexities of financial markets. Thus, this study utilizes quarterly data from 2000Q1 to 2022Q4 employing a panel Vector Autoregression (VAR) methodology to analyze the impulse response functions of three financial indicators (stock returns, stock price volatility, and domestic private credit) to fiscal policy innovations through a comparative analysis between developed and developing countries. Our findings reveal disparities between developed and developing countries in response to expansionary and tightened fiscal policy innovations. In developed nations, an expansionary fiscal policy innovation increases stock price volatility while having an insignificant effect on stock returns and domestic private credit. Conversely, in developing countries, such innovations also lead to increased stock price volatility and a significant rise in domestic private credit, though they exhibit an insignificant effect on stock returns. Furthermore, a tightened fiscal shock in developed countries causes stock returns and domestic private credit to surge while lowering stock price volatility. In developing countries, however, a tightened fiscal shock leads to a rise in stock price volatility and domestic private credit, with an insignificant effect on stock returns. The findings suggest that fiscal policy should be tailored to a country’s level of development, as developed and developing countries respond differently to fiscal shocks. Strengthening financial institutions and improving policy coordination are key to managing these effects effectively. These insights are crucial for policymakers aiming to optimize the impact of fiscal interventions on financial markets during crises.</p>