Budget balancing in a two-dimensional macroeconomic model

A two-person nonlinear dynamic game is presented to model the government's strategy to decrease the budget deficit, where Player 1 is the government using fiscal control and Player 2 represents the private sector. In our macroeconomic model the growth rate of the labour force is not known, but its lower and upper bounds are given a priori. This means that the system is uncertain, which makes the determination of an optimal solution (in a Nash, Stackelberg, etc. sense) impossible. Therefore, only a guaranteeing cost control is determined for Player 1. It is shown that the balancing by a guaranteeing cost control is possible even in the most unfavourable situation, when the governmental debt is higher and the volume of fixed capital stock is lower than the equilibrium value.