This study investigates the role of institutional quality in shaping the relationship between fiscal policies and economic growth in Iran and selected emerging economies during 2003–2022. Institutional quality is measured using indicators such as control of corruption, government effectiveness, regulatory quality, rule of law, political stability, and voice and accountability, while fiscal policies are represented by tax rates and government expenditures. Using panel data and the Generalized Method of Moments, the analysis examines both the direct and interactive effects of institutions and fiscal variables on economic performance. The findings indicate that strong institutional frameworks, particularly control of corruption and government effectiveness, enhance the efficiency of fiscal policies and promote sustainable economic growth. In contrast, weak institutions reduce the effectiveness of public spending and taxation, leading to inefficiencies and fiscal imbalances. Interaction analysis shows that coordination between institutional quality and fiscal policies amplifies growth effects, while misalignment in weak institutional contexts can hinder development. Including control variables such as human capital, technology, inflation, population growth, and investment further highlights the moderating role of these factors. Overall, the results underscore that institutional quality is a critical channel through which fiscal policies affect growth. The study provides evidence that achieving sustainable and inclusive economic expansion requires not only sound fiscal management but also substantial improvements in governance and institutional frameworks. Policymakers are advised to implement institutional reforms alongside fiscal adjustments to enhance transparency, reduce corruption, and ensure efficient allocation of public resources.