Budget balancing in a two-dimensional macroeconomic model

Éva Gyurkovics, Dietmar Meyer and Tibor Takacs

Mathematical and Computer Modelling of Dynamical Systems, 2007, vol. 13, issue 2, 179-192

Abstract: A two-person nonlinear dynamic game is presented to model the government's strategy to decrease the budget deficit, where Player 1 is the government using fiscal control and Player 2 represents the private sector. In our macroeconomic model the growth rate of the labour force is not known, but its lower and upper bounds are given a priori . This means that the system is uncertain, which makes the determination of an optimal solution (in a Nash, Stackelberg, etc. sense) impossible. Therefore, only a guaranteeing cost control is determined for Player 1. It is shown that the balancing by a guaranteeing cost control is possible even in the most unfavourable situation, when the governmental debt is higher and the volume of fixed capital stock is lower than the equilibrium value.

Date: 2007
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DOI: 10.1080/13873950600739034

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