In Search of the Motives behind US Fiscal Macroeconomic Policy

In this paper optimal control techniques are applied to estimate the motives behind US fiscal macroeconomic policy. Starting from a range of possible objectives and given the perception of policy makers about the environment in which they operate, the priorities of policy makers are estimated on the basis of their past actions. Our statistical approach allows for testing the empirical relevance of alternative hypotheses with respect to the objectives of governments. Democratic and Republican administrations are found to aim at different targets. Some support is also found to political business cycle theories.