Environmental regulation and economic cycles

This paper considers economic cycles that do not depend on the exogenous economic actions. More precisely, the paper develops a positive model of government behavior in order to define the intertemporal fiscal policies that are optimal for a country, determining the optimal level of the budget and the optimal level of the rate of environmental quality, as well. For this purpose, we setup an optimal control model involving the intertemporal subsidy strategies for an authoritarian (like a central European) government. It will be shown - applying the Hopf bifurcation theorem - that cyclical strategy, i.e. waves of regulation, environmental subsidies alternating with deregulation, cuts in social programmes, etc., may be optimal strategies. In this paper we propose an extremely simple optimal control model concerning budget surplus and environmental subsidies. We investigate the cyclical subsiding policies applying one bifurcation theorem. A number of propositions are stated during the solution process.