Optimal Composition of State Budget Expenditures for Oil Rich Countries
Proceedings of the 6th Intern. Conf on Control and Optimiza-tion with Industrial Applica-tions, Baku, 2018, 11-13 July, volume II, pp. 14-16.
3 Pages Posted: 18 Jun 2020
Date Written: 2018
Beginning from the middle of previous century, more accurately after the Great Depression, the governments' fiscal policy expands their role in the regulation of economy. Nowadays mostly in emerging markets fiscal policy is gaining significance in stimulation of economic growth. Wagner discussed the importance of the Governments' role in definition of the contours of economic growth, unlike the classical economists. After the 1930s, Keynes introduced his concept, that the government budget is a powerful tool to affect aggregate demand and regulate economy. Not only aggregate demand could be stimulated by high government spending; consumption and investment spending could be influenced by lowering or raising taxes. Nowadays the share of government spending in the economy is increasing, discussions about the effectiveness of fiscal multipliers are ongoing. Moreover, it is clear from the endogenous growth literatures that fiscal policy has potential effects on economy in long-run. In this context and post-crisis period an investigation of the impact of government spending on the economic activity becomes substantial. This paper investigates the optimal composition of the state budget. The optimal division of state budget expenditures maximizes the firms and households utility and attains the steady-state growth rate of the Azerbaijan economy. The optimal shares of capital and current expenditures of state budget were defined as 24.8 percent and 75.2 percent respectively, while average effective composition was 33 percent and 67 percent for the same period in Azerbaijan.
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