This article derives optimal fiscal rules within a stochastic model of Keynesian type in the context of Poole (1970) analysis. By using optimal control theory and applying the Hamilton-Jacoby-Bellman equation, we extend the original Poole results concerning the output stabilization properties of monetary policy to the case of fiscal policy. In particular, we look for the optimal setting of gove...

In this study, a macro-economic model consisting of twelve behavioral equations and fourteen identity equations was estimated with the aim of investigating the effectiveness of monetary and fiscal policies set out in the fourth and fifth development plans. In the estimated model, the variables of development expenditures, current expenditures and tax revenues are used as fiscal policy tools and...

After nearly a quarter century of large budget deficits—causing the public debt to double from 20 percent to 42 percent as a share of GDP in the industrialized countries—the need for greater fiscal discipline appears to be reaching a consensus. Last spring a balanced budget amendment to the U.S. Constitution passed in the House of Representatives and came close to passing in the Senate—a swing ...

The paper investigates the stabilizing potential of fiscal policy in a monetary union. The discussion about fiscal stabilization policy has been revived in the context of EMU. We consider a taxation-based stabilization policy, where the fiscal authority intends to minimize the output gap. As policy instrument, we consider a time-varying component in taxes on consumption. The model combines a mo...

This paper investigates the consequences of debt stabilization for inflation targeting. If the monetary authority perfectly stabilizes inflation while the fiscal authority holds constant the real value of debt at maturity, the equilibrium dynamics might be indeterminate. However, determinacy can be restored by committing to targeting rules for either monetary or fiscal policy that include a con...

Abstract Today, debt stabilization in an uncertain environment is an important issue. In particular, the question how fiscal and monetary authorities should deal with this uncertainty is of much importance. Especially for some developing countries such as Iran, in which on average 60 percent of government revenues comes from oil, and consequently uncertainty about oil prices has a large effec...