Comparative Study among Classical, Keynesian, Neo-Classical and Ricardian Equivalence Hypothesis (REH) Doctrines Regarding Budget Deficit and Economic Growth in Bangladesh Economy: A Study

Abstract

Purpose: To get comparative study among Classical, Neoclassical, Keynesian and Ricardian doctrine on budget deficit and economic growth and reveal the most relevant doctrines prevail in Bangladesh economy. Methodology: Descriptive statistics had been utilized to reveal the relevancy of appropriate doctrine support the real status of Bangladesh economy covering period from 2000-01 to 2020-21 fiscal years. Findings: The study found that resolving longer term structural challenges, diversification of exports beyond the RMG sector, graduating from LDCs to developing countries by 2026, upper middle income countries by 2041 and developed countries by 2050 Bangladesh invested huge amount by deficit budgeting in multiple sectors which creates crowd-out private investment specially resources crowd-out mentioned as neoclassical doctrine and expects crowd-in private investment and achieve satisfactory growth rate after successful completion of various mega projects which support Keynesian doctrine. Practical Implication: Budget deficit can increase interest rate and lowering economic growth by crowding-out private investment according to neoclassical thought and Keynes discloses reverse opinion of deficit budget appreciates economic growth by crowding-in private investment. Bangladesh economy operates with both neo-classical and Keynesian doctrine practically and got results in short-run and will get more in long-run. Economy should run with deficit financing and govt. can reduce deficit only by earning more from improving Tax-GDP ratio and hindering money laundering by under in-voicing and over in-voicing. Originality: Bangladesh Govt. should invest more in Social overhead Capital (SOC) by fiscal deficit which will induce Direct Productive Activities (DPA) and economic growth in the long-run. Limitations: All the data are collected from secondary sources and used descriptive statistics since it is a comparative study.