 Democrats in the United States argue that government spending can be used to "grease the wheels" of the economy  to create wealth and to increase employment; Republicans contend that government spending is wasteful and discourages investment, thereby increasing unemployment. These arguments cannot both be correct, but both arguments seem meritorious. Faced with this paradox, one might hope that a rigorous mathematical approach might help determine the truth. We address this economic question of fiscal stimulus as a new optimal control problem generalizing the model of Dutta and Radner 1999%DIFDELCMD < ]%%% . We find  that there exists an optimal strategy and provide rigorous verification proof for the optimality . Further, we prove a few interesting mathematical properties of our solution, providing deeper insight into this important politico-economic debate and illustrating how the fiscal stimulus from the government may affect the profit-taking behavior of firms in the private sector .
During the Great Recession, Democrats in the United States argued that government spending could be utilized to "grease the wheels" of the economy in order to create wealth and to increase employment; Republicans , on the other hand, contended that government spending is wasteful and discouraged investment, thereby increasing unemployment. Today, in 2020, we find ourselves in the midst of another crisis where government spending and fiscal stimulus is again being considered as a solution. In the present paper, we address this question by formulating an optimal control problem generalizing the model of %DIFDELCMD < ]%%% Radner Shepp (1996). The model allows for the company to borrow continuously from the government. We prove that there exists an optimal strategy ; rigorous verification proofs for its optimality are provided. We proceed to prove that government loans increase the expected net value of a company. We also examine the consequences of different profit-taking behaviors among firms who receive fiscal stimulus .
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During the Great Recession,
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argue
argued
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can be used
could be utilized
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in order
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contend
, on the other hand, contended
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discourages
discouraged
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These arguments cannot both be correct, but both arguments seem meritorious. Faced with this paradox, one might hope that a rigorous mathematical approach might help determine the truth. We address this economic question of fiscal stimulus as a new
Today, in 2020, we find ourselves in the midst of another crisis where government spending and fiscal stimulus is again being considered as a solution. In the present paper, we address this question by formulating an
D
Dutta and Radner
D
1999
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. We find
Radner
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Shepp (1996). The model allows for the company to borrow continuously from the government. We prove
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and provide rigorous verification proof for the optimality . Further, we prove a few interesting mathematical properties of our solution, providing deeper insight into this important politico-economic debate and illustrating how the fiscal stimulus from the government may affect the
; rigorous verification proofs for its optimality are provided. We proceed to prove that government loans increase the expected net value of a company. We also examine the consequences of different
R
behavior of firms in the private sector
behaviors among firms who receive fiscal stimulus