Do fiscal rules affect growth?

Abstract

Over the past three decades, many countries have adopted fiscal rules. This paper studies their impact on economic growth using an overlapping generations model with endogenous growth, where the government imposes both a debt rule and a budget balance rule. The model shows that fiscal rules are not neutral: their design and interaction, through an endogenously adjusting tax rate, directly shape savings, capital accumulation, and long-term growth. The model identifies conditions under which a balanced growth path exists and highlights the possibility of multiple steady states. (...)