ABSTRACT
This chapter explores the importance of fiscal policy in under-developed countries, delineating a different objective than that of advanced countries. Since fiscal policy involves political processes, the process of state-building in developing countries needs to be critically understood. The process of state-building largely depends on the capacity of a government to raise sufficient revenue and then to utilise it in an efficient manner. However, how taxation can be used to promote state-building has remained an under-studied area in the academic arena. For transformation, the chapter suggests, the fiscal policy has to accelerate the rate of physical and human capital formation by expanding investments in public and private enterprises and by diverting resources from socially less desirable sectors to achieve full employment and the equitable distribution of income and wealth. Amid the COVID-19 crisis, the state–citizen relationship has been analysed on the basis of following state directives and the distribution process of fiscal stimulus to the productive sectors in the economy.
