Optimal fiscal policy in a multisector model with minimum fiscal expenditure requirements

  1. Cassou, Steven P.
  2. Gorostiaga, Arantza

ISSN: 1988-088X

Year of publication: 2007

Issue: 1

Type: Working paper

More publications in: DFAE-II WP Series


This paper investigates optimal .scal policy in a static multisector model. A Ramsey type planner chooses tax rates on each good type as well as spending levels on each good type subject to an exogenous total expenditure constraint and requirements that some minimum amount of spending be undertaken in each sector. It is shown that optimal policy does not equally spend in each sector but instead results in one of the minimum expenditure constraints binding