This study investigates how the government fiscal stimulus policy affects public-debt sustainability and the unemployment rate. We analyze an economy with an imperfect labor market in which the government maintains its budget from tax revenue and public debt. We assume that the government's income transfer is fiscal stimulus policy and show that the policy reduces the unemployment rate, increases the economy's growth rate, and raises the threshold of the ratio of public debt to private capital that is needed to sustain public debt. The arguments presented show that an income transfer policy may generate an economy that not only is sustainable with regard to public debt but also has a low unemployment rate in the long run.

This paper presents an examination of the sustainability of national debt and economic growth, and the growth effects of government debt and income taxation. Results show sustainability of national debt and economic growth under the primary surplus rule. Fiscal policy and balanced growth are compatibly sustainable if and only if the government sets a long-run target debt/GDP (gross domestic product) ratio within a reasonable range. Results also show that a rise in the long-run debt/GDP ratio reduces the balanced growth rate. Based on these two results, the long-run debt/GDP ratio is greater than zero if the government aims to maximize the balanced growth rate.

This paper presents an examination of the interaction between indeterminacy and productive government spending financed by taxes in a one-sector growth model. In the paper, we show that the possibility of indeterminacy is positively affected by dependence on income tax financing and is negatively affected by consumption tax financing. Under balanced budget rules, a key determinant for indeterminacy is a revenue source for providing public services (i.e. income tax financing) rather than the presence of productive government spending. (C) 2011 Elsevier B.V. All rights reserved.