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 behaviour 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 public revenue, variation in public expenditure, and management of public debt. These are reflected in the budgetary operations of the government, prepared and implemented on year-on-year basis.

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. The situation was further aggravated by frequent internal and external shocks. Under the circumstances, government fiscal policies during 1970s and 1980s were largely oriented at rehabilitating the war-torn economy as well as stabilising it from various shocks. This had gradually lead to weak fiscal structure and poor fiscal management. The tax structure was such that any increase in taxes due to built-in consequences of economic growth was virtually not possible. This was because of the fact that despite a moderate growth of the economy, income distribution was skewed, and had been pushing more and more people below the poverty line each year. As such, the proportion of