Abstract
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.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Similar content being viewed by others
References
Akaike, H. (1969). Fitting autoregressive models for prediction. Annals of the Institute of Statistical Mathematics, 21(1), 243–247.
Akaike, H. (1974). A new look at the statistical model identification. IEEE Transactions on Autometic Control, AC-19(6), 716–723.
Babatunde, O. A., Ibukun, A. O., & Oyeyemi, O. G. (2017). Taxation revenue and economic growth in Africa. Journal of Accounting and Taxation, 9(2), 11–22.
Barro, R. J. (1990). Governemnt spending in a simple model of endogenous growth. Journal of Political Economy, 98(5PT 2), S103–S125.
Barro, R. J. (1991). Economic growth in a cross section of countries. The Quarterly Journal of Economics., 106(2), 407–443.
Barro, R. J., & Sala-I-Martin, X. (1992). Public finance in models of economic growth. The Review of Economic Studies, 59(4), 645–661.
Connolly, M., & Li, C. (2016). Government spending and economic growth in the OECD countries. Journal of Economic Policy Reform, 19(4), 386–395. https://doi.org/10.1080/17487870.2016.1213168.
Dickey, D. A., & Fuller, W. A. (1979). Distribution of the estimators for autoregressive time series with a unit root. Journal of the American Statistical Association, 74(366a), 427–431.
Easterly, W., & Rebelo, S. (1993). Fiscal policy and economic growth. Journal of Monetary Economics, 32(3), 417–458.
Engen, E. M., & Skinner, J. (1992, December). Fiscal policy and economic growth. NBER working paper no. w4223.
Granger, C. (1969). Investigating causal relations by econometric models and cross-spectral methods. Econometrica, 37(3), 424–438.
Hannan, E. J., & Quinn, B. G. (1979). The determiantion of the order of an autoregression. Journal of the Royal Statistical Society, Series B, 41(2), 190–195.
Johansen, S. (1988). Statistical analysis of cointegration vectors. Journal of Economic Dynamics and Control, 12(2–3), 231–254.
Johansen, S., & Juselius, K. (1990). Maximum likelihood estimation and inference on cointegration with applications to demand for money. Oxford Bulletin of Economics and Statistics, 52(2), 169–210.
Keynes, J. M. (1936). The general theory of employment, interest and money. London: Macmillan.
Kneller, R., Bleaney, M. F., & Gemmell, N. (1999). Fiscal policy and growth: Evidence from OECD countries. Journal of Public Economics, 74(2), 171–190.
Kormendi, R. C., & Meguire, P. G. (1985). Macroeconomic determinants of growth. Journal of Monetary Economics, 16(2), 141–163.
Kyissima, K. H., Pacific, Y. K., & Ramadhan, A. A. (2017). Government expenditure and economic growth in Tanzania: A time series analysis. International Journal of Development and Economic Sustainability, 5(1), 11–22.
Landau, D. (1983). Governemnt expenditure and economic growth: A cross country study. Southern Economic Journal, 49(3), 783–792.
Liew, V. K.-S. (2004). Which lag length selection criteria should we employ? Economics Bulletin, 3(33), 1–9.
Ojong, C. M., Anthony, O., & Arikpo, O. F. (2016). The impact of tax revenue on economic growth: Evidence from Nigeria. IOSR Journal of Economics and Finance, 7(1), 32–38.
Phillips, P. C., & Perron, P. (1988). Testing for a unit root in time series regression. Biometrika, 75(2), 335–346.
Ram, R. (1986). Government size and economic growth: A new framework and some evidence from cross-section and time-series data. American Economic Review, 76(1), 191–203.
Schwarz, G. (1978). Estimating the demension of a model. Annals of Statistics, 6(2), 461–464.
Wagner, A. (1883). Three extracts on public finance. In R. A. Musgrave & A. T. Peacock (Eds.), Classics in the theory of public fiannce (pp. 1–15). London: Macmillan.
Author information
Authors and Affiliations
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2020 The Author(s)
About this chapter
Cite this chapter
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
Download citation
DOI: https://doi.org/10.1007/978-981-15-1244-5_7
Published:
Publisher Name: Palgrave Macmillan, Singapore
Print ISBN: 978-981-15-1243-8
Online ISBN: 978-981-15-1244-5
eBook Packages: Economics and FinanceEconomics and Finance (R0)