This paper models the role of the fiscal policy and the behaviour of the budget deficit in a continuous time stochastic economy. The model is developed in a general equilibrium framework, integrating the optimisation behaviour of representative consumer and the intertemporal resource constraint...

This paper discusses the problem of the optimal determination of budget deficit limits in cases where the fiscal authority wishes to keep the budget deficit close to a reference value. It is assumed that the fiscal authority minimizes the expected discounted value of squared deviations from the...

This paper examines the different types of incentives that countries face when deciding to take part in a federal fiscal system. The optimal degree of participation depends on the structural parameters of the economy and on the properties of the federal fiscal system. Firstly, the paper examines...