Intan SYAHRINI, Raja MASBAR, Aliasuddin ALIASUDDIN, Said MUNZIR, Yusri HAZMI / Journal of Asian Finance, Economics and Business Vol 8 No 3 (2021) 0741–0750 741 741 Print ISSN: 2288-4637 / Online ISSN 2288-4645 doi:10.13106/jafeb.2021.vol8.no3.0741 The Application of Optimal Control Through Fiscal Policy on Indonesian Economy Intan SYAHRINI 1 , Raja MASBAR 2 , Aliasuddin ALIASUDDIN 3 , Said MUNZIR 4 , Yusri HAZMI 5 Received: November 30, 2020 Revised: February 01, 2021 Accepted: February 16, 2021 Abstract The budget deficit is closely related to expansionary fiscal policy as a fiscal instrument to encourage economic growth. This study aims to apply optimal control theory in the Keynesian macroeconomic model for the economy, so that optimal growth can be found. Macroeconomic variables include GDP, consumption, investment, exports, imports, and budget deficit as control variables. This study uses secondary data in the form of time series, the time period 1990 to 2018. Performing optimal control will result in optimal fiscal policy. The optimal determination is done through simulation, for the period 2019–2023. The discrete optimal control problem is to minimize the objective function in the form of a quadratic function against the deviation of the state variable and control variable from the target value and the optimal value. Meanwhile, the constraint is Keynes’ macroeconomic model. The results showed that the optimal value of macroeconomic variables has a deviation from the target values consisting of: consumption, investment, exports, imports, GDP, and budget deficit. The largest deviation from the average during the simulation occurs in GDP, followed by investment, exports, and the budget deficit. Meanwhile, the lowest average deviation is found in imports. Keywords: Optimal Control, Macroeconomic Variables, Budget Deficit JEL Classification Code: E6, E62, F3 Meanwhile, the economic growth in a number of ASEAN countries is in the range of 2.95 percent and the world economy is lower at an average level of 0.1 percent. The condition of the 2008 global economic crisis had a relatively small impact on the Indonesian economy. This is due to the high level of household consumption, which contributes around 55 percent to 58 percent of GDP. This condition was also supported by the increase in government spending to overcome the economic crisis. Unemployment has decreased from 9.39 million people or 8.93 percent in 2008 to 8.96 million people or 7.87 percent in 2009. The decline in unemployment was followed by a decrease in the inflation rate, from 11.06 percent in 2008 to 2.78 percent in 2009. Inflation in 2009 was the lowest in the last 10 years. The decline in the unemployment rate was also followed by a decrease in the inflation rate. Household consumption in 2009 became the main driver for Indonesia’s economic growth during the global crisis (Kementrian Keuangan, 2018). The government, through fiscal policy, aims to regulate economic activity so that the economy is more stable in the long run (Sukirno, 2016). Fiscal policy must be supported by an appropriate and consistent monetary policy, thereby 1 First Author and Corresponding Author. Faculty of Mathematics and Natural Science, Universitas Syiah Kuala, Indonesia [Postal Address: Jl. Teuku Nyak Arief No.441, Kopelma Darussalam, Kec. Syiah Kuala, Kota Banda Aceh, Aceh 23111, Indonesia] Email: Intansyahrini@unsyiah.ac.id 2 Faculty of Economics and Business, Universitas Syiah Kuala, Indonesia. Email: raja.masbar@unsyiah.ac.id 3 Faculty of Economics and Business, Universitas Syiah Kuala, Indonesia. Email: aliasuddin@unsyiah.ac.id 4 Faculty of Mathematics and Natural Sciences, Universitas Syiah Kuala, Indonesia. Email: smunzir@unsyiah.ac.id 5 Politeknik Negeri Lhokseumawe, Indonesia. Email: yusri.poltek@gmail.com © Copyright: The Author(s) This is an Open Access article distributed under the terms of the Creative Commons Attribution Non-Commercial License (https://creativecommons.org/licenses/by-nc/4.0/) which permits unrestricted non-commercial use, distribution, and reproduction in any medium, provided the original work is properly cited. 1. Introduction Prior to the global financial crisis, the Indonesian economy was experiencing a fairly good growth, in the range of an average of 6.04 percent per year (period 2000–2007). However, during the global crisis in 2008 and 2009, the economy only grew at a rate of 5.0 to 5.3 percent per year.