Authors: Charalampos-Anastasios Domenikos, Stelios Kotsios
Title: Controlling GDP and Debt with a Post-Keynesian model
Abstract
Our aim in this paper is to propose an alternative approach for the design of fiscal policy rules, utilizing the mathematical control theory for the design of feedback laws. The “great recession” of 2008, reintroduced fiscal policy (Blanchard et al. 2012), with fiscal consolidation acting as the main instrument to control the impact of the crisis. Our approach is based on examining whether appropriate linear fiscal policy rules exist and, if they do exist, how they should be designed so that desired values for the policy targets are reached (in particular targets for GDP and public debt). Specifically, we develop appropriate symbolic algorithms for constructing such rules. The main questions that will occupy us are:
In order to be provided with answers in these two questions, we utilize a version of a linear, discrete macroeconomic model of the Post-Keynesian bibliography. We introduce the following metrological approach.
At first, we will use the theory of the flexible targets, in which case, the parameters of the system will remain constant and time invariant. In particular, using the government expenditure as the control function, we will design fiscal policy rules which will ensure that the predefined targets for GDP and debt will be approached as close as possibly by minimizing a cost function.
For the second part, we present some taxation scenarios, where we examine the outputs for various values of taxation, in order to gain some insight into the effects of taxation of both classes (capitalists and workers) in fiscal policy implementation. Furthermore, we compare the results with a Samuelson model.
The main findings at which this dissertation aims are:
