Fiscal Policy

Table of contents

| Contents | Page no |

01. | Executive summary | 02 |

02. | Definition of fiscal policy | 03 |

03. | Balancing act | 03 |

04. | Fiscal policy of Bangladesh | 04 |

05. | Fiscal management in Bangladesh | 09 |

06. | How fiscal policy works | 12 |

07. | Who does fiscal policy affect | 12 |

08. | Economic effects of fiscal policy | 13 |

09. | Role of fiscal policy | 14 |

10. | Criticism of fiscal policy | 15 |

Executive summary

Fiscal policy is used by governments to influence activity within an economy. The idea, however, is to find a balance between changing tax rates and public spending. 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. In the initial years of independence, the government of Bangladesh had to spend a large amount of its resources in reconstruction and rehabilitation work. It had negative public savings and limited private investment. Despite large inflows of foreign aid, the increasingly large financing gap became the main concern of the government. Regular deficit financing, normally undertaken through borrowings from abroad, from Bangladesh bank, and from scheduled banks, has become a basic feature of the fiscal policy of the country. Opportunity of borrowing from the public by the government for financing budget deficit is very limited in the country as savings capability of the people is very low. Therefore, the opportunity of non-inflationary financing of budget deficit does not exist here. Efforts to generate increased domestic resources are generally based on various tax reforms as well as reforms in the financial sector. Top priority has been given to improve the quality and coverage of the education system as well as health and family planning services, and social safety net programmes to serve vulnerable group. The management of public finances in...