This article uses simple and self-contained optimal control theory and martingale methods to find optimal government expenditure consistent with present value balance and, implicitly sustainable saving, borrowing, and tax levels as well, since long-term sustainable paths are, in principle, not...

During recessions, the newspapers are filled with stories of the pain caused by state and local budget cuts: slashed mental health funding, reductions in school meals, further delays in long-overdue infrastructure maintenance and replacement, and new taxes. During booms, they are filled stories...

This analysis reflects the presumption that the principal-agent relationship is central to an understanding of government spending. Our model's structure is adapted from Jack Hirshleifer's (1970) use of the state-preference theory of decision-making under uncertainty to delimit the information...