Public debt and endogenous growth

The purpose of this paper is to provide an analysis of the consequences on growth and welfare of two different financing schemes of the fiscal stance. These schemes are respectively : a balanced budget policy and a public debt policy. We make use of an overlapping generations model with productive public expenditures and endogenous growth. We show that, with a balanced budget policy the equilibrium growth rate is strictly higher than the growth rate resulting from a public debt policy. We also provide conditions under which a given financing scheme is socially superior to the other one. indeed, it may be socially desirable to finance public expenditures by issuing public bonds rather than to manage to balance the budgets.