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The global economic crisis that broke out in 2008 has reawakened interest in fiscal policy. In the early stages of the crisis, there was a widespread turn to countercyclical fiscal stimulus. Furthermore, the recent euro area crisis has underlined the importance of long-term fiscal sustainability for macroeconomic stability. More subtly, the global crisis has also refocused interest in fiscal policy as an instrument for longer-term growth and development. In the potential “new normal” of continued sluggishness in the advanced world, developing countries have strong incentives to seek out new domestic engines for efficiency and productivity growth, as well as for greater equity in development. The potential of fiscal policy to promote these ends is therefore of great interest to developing country policy makers. This note focuses on that potential and provides an overview of how fiscal positions in developing countries have evolved in the wake of the crisis, as well as some emerging policy lessons. It then sketches a conceptual framework for thinking about the connections between fiscal policy and longer-term growth and development. Finally, this note highlights some findings about the connections between fiscal policy and development.
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Effectiveness of Fiscal Policy in Stimulating Economic Growth: An Empirical Study on Bangladesh
- First Online: 22 February 2020
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- Selim Raihan 2 , 3 &
- Iffat Anjum 3
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The effectiveness of fiscal policy in stimulating the economic activity and maintaining macroeconomic stability of a country has received considerable policy and research interests. This chapter aims to explore the effects of key fiscal policy instruments on economic growth in the context of Bangladesh economy. The study conducts time series analysis using data of real gross domestic product (GDP), government current consumption and tax revenue of Bangladesh for the period 1980–2017. Using the vector error correction model (VECM) and Johansen cointegration technique, the chapter analyzes both short-run and long-run effects of fiscal policy instruments on economic growth. The findings of the study suggest that there is a positive and significant long-run causal relationship between real GDP growth and government consumption as well as between real GDP growth and tax revenue. The study also investigates nature of the impulse response functions (IRFs) resulting from vector autoregression (VAR). Finally, the study attempts to provide relevant policy insights based on the research findings.
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Raihan, S., Anjum, I. (2020). Effectiveness of Fiscal Policy in Stimulating Economic Growth: An Empirical Study on Bangladesh. In: Hossain, M. (eds) Bangladesh's Macroeconomic Policy. Palgrave Macmillan, Singapore. https://doi.org/10.1007/978-981-15-1244-5_7
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Published : 22 February 2020
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The fiscal policy of Bangladesh refers to the government’s actions and measures concerning taxation, spending, and borrowing to achieve economic stability and promote sustainable economic growth. The main objectives of Bangladesh’s fiscal policy include mobilizing revenue, allocating resources efficiently, ensuring macroeconomic stability, and
This paper investigates the short- and long-run effects of fiscal policy variables on economic growth in Bangladesh using the up-to-date time-series data for the period 1976 to 2019. The effectiveness of fiscal policy variables varies across the countries depends on the nature of the fiscal stance adopted in the national budgetary allocations.
This paper offers possible explanations for three generally observed facts about fiscal policy and development: (F1) the relative size of government increases as an economy develops, (F2) the rise in government and taxation are associated with rising or constant economic growth rates, and (F3) today's developing countries have larger ...
In this chapter, we attempt to review the conduct of fiscal policy in Bangladesh, and in that context, we discuss the pattern of fiscal policy indicators as well as identify the possible risks associated with it.
The findings suggest that fiscal policy is more effective in stimulating growth in the long run than in the short run in Bangladesh. The quantitative analysis thus points to the importance of increasing government consumption for stimulating economic growth in Bangladesh.
Abstract. For developing countries like Bangladesh, understanding the relative impact of monetary and fiscal policies on GDP growth is crucial to formulate growth-enhancing policy decisions. This paper inspects into the relative effectiveness of these two policies on the real GDP growth of Bangladesh using ARDL, VECM and VAR estimation ...
monetary policy on inflation rate. This paper analyses the fiscal deficit-CPI inflation relationship in the context of Bangladesh using the ARDL cointegration approach suggested by Pesaran and Shin (1995) based on annual data for the period 1974-2010. The study finds that fiscal deficits have inflationary effects in the long run and together
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This paper identifies, quantifies, and assesses fiscal risks in Bangladesh. By performing sensitivity analysis and using stochastic simulations, it measures risks arising from shocks to GDP growth, the exchange rate, commodity prices, and interest rates.
Fiscal policy is one of the major instruments of macroeconomic management of Bangladesh. This paper empirically evaluates the dynamic impacts (impulse responses) of expansionary and restrictive fiscal policy measures on real GDP, price level (GDP deflator), and exchange rate of Bangladesh.