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Fiscal policy in a recessionary economy with high debt: An application of control theory
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Vahid Shahabinejad   , Ali Nasiri aghdam * , Reza Zamany , Mohammad Mollaei Emamzade |
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Abstract: (147 Views) |
| one of the most important experience of the crisis of 2008 was the ineffectiveness of countercyclical fiscal policies to get out of the recession due to the high debt of the countries. Therefore most of the countries started strengthening their economy. Now, one of the important questions in the field of public sector economy is how to achieve economic growth by reducing the debt ratio. The present study was developed in order to answer this question for a hypothetical economy with natural oil revenues. For this purpose, control theory has been used and simulations have been made for a closed economy in a ten year period. The results of the simulation show that it is possible to simultaneously target the two issues of growth and debt with a consolidated fiscal policy. In this proposed policy, a combination of government spending and tax rate, as control variables, is obtained, which leads us to the predetermined goals in economic growth and government debt ratio, as state variables, in each period. finally, oil modeling and control rules extracted in this study make fiscal stabilization less expensive for governments. |
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| Keywords: Fiscal policy, Public debt, Economic growth, Control theory. |
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Full-Text [PDF 1257 kb]
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Type of Study: Research |
Subject:
Special
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