Fiscal stabilization rule and overlapping generations

Recently important policy debate of both developed and emerging countries is about fiscal sustainability of government deficit. Fiscal authorities want to search for the fiscal stabilization rule that sustains their debt We investigate how the fiscal stabilization rule sustains the government debt in overlapping generations model. If the fiscal stabilization rule which improves primary balance to an increase of government debt is sufficiently strong, there are two steady states; one is higher capital stock and output and lower government debt, and the other is lower capital stock which satisfies dynamic efficiency and higher government debt (C) 2015 Elsevier Inc. All rights reserved.