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Budget balancing in a two-dimensional macroeconomic model

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  • Éva Gyurkovics
  • Dietmar Meyer
  • Tibor Takács

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.

Suggested Citation

  • Éva Gyurkovics & Dietmar Meyer & Tibor Takács, 2007. "Budget balancing in a two-dimensional macroeconomic model," Mathematical and Computer Modelling of Dynamical Systems, Taylor & Francis Journals, vol. 13(2), pages 179-192, April.
    • Handle: RePEc:taf:nmcmxx:v:13:y:2007:i:2:p:179-192
    DOI: 10.1080/13873950600739034
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    References listed on IDEAS

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    1. Robert M. Solow, 1956. "A Contribution to the Theory of Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 70(1), pages 65-94.
    2. Krawczyk, Jacek B. & Shimomura, Koji, 2003. "Why countries with the same technology and preferences can have different growth rates," Journal of Economic Dynamics and Control, Elsevier, vol. 27(10), pages 1899-1916, August.
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