THE RITSUMEIKAN ECONOMIC REVIEWVol. 70 No. 1 May 2021 25 Article The Fiscal and Monetary History of Bangladesh: 1971 ― 2020 Dilruba BEGUM* Abstract Since independence, Bangladesh has rapidly traversed from being a developing country with a weak fiscal system and a poorly functioning economy, to become a middle-income country with a rapidly growing and vibrant economy. This paper identifies reasons behind this transformation that are related to the management of fiscal resources along an inter- temporal budget constraint. For that purpose, it divides the fiscal and monetary history of Bangladesh since independence into three successive government regimes: ⑴ Sheikh Mujibur Rahman and Ziaur Rahman, 1971 ― 1982, ⑵ Hussain Muhammad Ershad, 1983 ― 1995, and ⑶ the current era, 1996 ― 2019. Scrutiny of each item in the government budget constraint during each period shows that the earlier regimes relied more on seigniorage and were more burdened by the obligation to service foreign debt compared to the current regime. Key words: Government Budget Constraint, Sargent Model, Fiscal and Monetary Policy. JEL Classification Code: E52 (Monetary Policy), E62 (Fiscal Policy), H62 (Deficit・Surplus) ઃ.Introduction An inter-temporal budget constraint for the government, proposed by Blanchard (1990), is the basic premise on which the analysis of fiscal sustainability rests. The constraint presumes that all government spending must eventually be funded by tax revenue. By accumulating government debt, taxes can be postponed only, not deferred. Two previous papers (Begun and Flath, 2020a, 2020b) defined various possible future tax trajectories consistent with the Bangladesh government budget constraint and calculated the present value of their accompanying excess tax burdens. This paper casts an eye backwards in time to describe how successive government regimes in Bangladesh traversed along the *Doctoral Student, Economics, Ritsumeikan University Email:
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