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Optimal fiscal policy in a simple macroeconomic context


  • Luca Correani

    () (Università degli studi della Tuscia, Viterbo)

  • Fabio Di Dio

    () (Consip S.p.A., Macroeconomic Modelling Unit, Rome, Italy)

  • Stefano Patrì

    () (Department of Methods and Models for Economics, Territory and Finance MEMOTEF, Sapienza University of Rome (Italy))


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 government expenditure and lump-sum taxation in the case that the fiscal authority wishes to keep the product close to a reference value and that the economy is assumed to be affected by stochastic disturbances of real and/or monetary type. According to the findings an optimal government expenditure rule is on average preferable to a taxation rule whatever the source of disturbances.

Suggested Citation

  • Luca Correani & Fabio Di Dio & Stefano Patrì, "undated". "Optimal fiscal policy in a simple macroeconomic context," Working Papers 111/13, Sapienza University of Rome, Metodi e modelli per l'economia, il territorio e la finanza MEMOTEF.
  • Handle: RePEc:rsq:wpaper:18/13

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    References listed on IDEAS

    1. Ravallion, Martin & Lokshin, Michael, 2002. "Self-rated economic welfare in Russia," European Economic Review, Elsevier, vol. 46(8), pages 1453-1473, September.
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    6. John Helliwell, 2001. "Social Capital, the Economy and Well-being," The Review of Economic Performance and Social Progress,in: Andrew Sharpe, Executive Director & France St-Hilaire, Vice-President , Research & Keith Banting, Di (ed.), The Review of Economic Performance and Social Progress 2001: The Longest Decade: Canada in the 1990s, volume 1 Centre for the Study of Living Standards;The Institutute for Research on Public Policy.
    7. Easterlin, Richard A, 2001. "Income and Happiness: Towards an Unified Theory," Economic Journal, Royal Economic Society, vol. 111(473), pages 465-484, July.
    8. Isabella Santini & Anna de Pascale, "undated". "Social capital and its impact on poverty reduction: measurement issues in longitudinal and cross-country comparisons. Towards a unified framework in the European Union," Working Papers 101/12, Sapienza University of Rome, Metodi e modelli per l'economia, il territorio e la finanza MEMOTEF.
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    More about this item


    Fiscal Policy; Poole model; Hamilton-Jacoby-Bellman equation.;

    JEL classification:

    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook


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