Performance Of Fiscal Policy Of Bangladesh

2824 words - 12 pages

Introduction

Fiscal policy generally refers to the use of taxation and government expenditure to regulate the aggregate level of economic activity in a country. Fiscal policy in Bangladesh basically comprises activities, which the country carries out to obtain and use resources to provide services while ensuring optimum efficiency of the economic units. The policy influences the behavior of economic forces through public finance.

Major objectives of the fiscal policy of Bangladesh are to ensure macroeconomic stability of the country, promote economic growth, and develop a mechanism for equitable distribution of income.

The main tools to achieve these objectives are variation in ...view middle of the document...

The use of taxation and government spending influences the economy. This may work via changing tax rates or the rates about liability to tax or via changes in government spending or real goods and services or transfer payments. Fiscal policy is formulated in line with the government’s National Strategy for Accelerated Poverty Reduction (NSAPR). Excess expenditure over revenue collection (fiscal deficit) may have adverse impact on the other sectors of the economy.

And that’s why the main objective of the paper is to “Evaluate the performance of fiscal policy of Bangladesh in respect of public expenditure, public revenue and public debt as fiscal policy performance indicator and derive some suggestions according to the findings”

The other important parts of the topic are discussed respectively in section-2 (literature & Review), section-3 (Methodology & sources of data), section-4 (Analysis & Findings), and section-5 (Conclusion of the whole work).

Literature and Review

Md. Ezazul Islam & Bishnu Pada Biswas (2006) Indicate Bangladesh has been following a moderate expansionary fiscal policy since the 1990s for achieving sustained higher growth to reduce poverty and to meet the expected economic performance.

Rabobank Economic Research Department (2009) concluded that the fiscal position remains fragile as government revenues are structurally below its expenditures. The public debt level has slightly improved to 35% of GDP in 2008 from 37% of GDP in 2007. The budget balance has been in deficit for the past 5 years.

Kannan (1997-98) describes that linkage between monetary and fiscal policy of Mauritius a small country. An increase in Government capital expenditure improves output, but its impact on output and prices depends upon how the increase in budget deficit will impact upon how the increase in its capital expenditure is financed.

Right after the end of Great Depression, there was a widespread credence that fiscal policy is more effective on economic activity. Keynes’s ‘General Theory’ followed by some noteworthy works, such as Leeuw et al. (1969), Schmidt and Waud (1973), Blinder and Solow (1974) provide basic theoretical and practical ground for active fiscal policy.

Antonio Spilimbergo (2005) evaluates the performance of fiscal policy in Russia Using a variety of indicators. Author evaluates the performance of fiscal policy in respect of debt stabilizing primary surplus, fiscal stance and fiscal impulse.

In Bangladesh, author Md. Habibur Rahaman (2005) measure the performance of fiscal policy by using an unrestricted vector auto regression framework based on the st. Louis Equation. The findings of this paper, thus, suggest that only monetary policy is effective in altering real output of Bangladesh where fiscal policy remains broadly ineffective. In order to achieve higher output growth, we should rely heavily on monetary policy rather than fiscal policy.

Author AbulAwal Sarker research on the impact of fiscal...

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