Policymarkers' preferences and the optimal budget for Austria

Abstract

Optimal budgetary policies for the period 1993–2000 are calculated for Austria within the framework of a problem of quantitative economic policy. An intertemporal objective function is minimized subject to the constraints of a macroeconometric model. Exogenous variables of the model are forecast by time series methods. Using the optimum control algorithm OPTCON, approximately optimal budgetary policies are determined. The sensitivity of optimal policies with respect to the weights given to control and endogenous target variables in the objective function is studied. The results of several optimum control experiments under varying assumptions about the weights show that there is some systematic dependence of optimal policies on these weights. Therefore, it is important to obtain accurate information about policymakers' preferences when determining the optimal budget.