This paper argues that as intervention, fiscal policy means more than simply any change in government spending and this requires of fiscal analysis a measure that separates the allocative from the counter-cyclical activities of government. Defining intervention as an optimal policy rule that...

This article develops a simple Dynamic Stochastic General Equilibrium (DSGE) model to illustrate how economies that face restrictions in their ability to alter both government spending and taxation in the short run and cannot borrow easily (perhaps because of incomplete internal capital markets)...