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Comparative analyses of fiscal sustainability of the budgetary policy rules

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  • Koichi Futagami
  • Kunihiko Konishi

Abstract

We construct a continuous‐time overlapping generations model with an endogenous growth structure and consider fiscal sustainability under two fiscal rules: (i) the government fixes the budget deficit‐to‐GDP ratio and (ii) the government fixes the primary balance‐to‐GDP ratio. Under the constant budget deficit‐to‐GDP rule, fiscal sustainability is ensured when the initial public debt‐to‐GDP and budget deficit‐to‐GDP ratios are sufficiently small. Under the constant primary balance‐to‐GDP rule, it is difficult to ensure fiscal sustainability when the primary balance is in deficit or zero. However, fiscal sustainability is ensured when the primary balance is in surplus and the initial government debt‐to‐GDP ratio is sufficiently small.

Suggested Citation

  • Koichi Futagami & Kunihiko Konishi, 2023. "Comparative analyses of fiscal sustainability of the budgetary policy rules," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 25(5), pages 944-984, October.
    • Handle: RePEc:bla:jpbect:v:25:y:2023:i:5:p:944-984
    DOI: 10.1111/jpet.12658
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