Productive Government Expenditure and Fiscal

We consider an overlapping generations model in which public spending directly contribu-tes to an increase in productivity, as in the model of Barro (1990), and in which the government conforms to the constant public-spending/GDP and debt-issuance/public-spending ratio rules. We numerically analyze the effects of a change of the public-spending/GDP ratio on fiscal sustainability, growth rate, and welfare. First, if the public-spending/GDP ratio is small, an increase in the ratio makes public debt sustainable. Second, if the public-spending/GDP ratio is small, then an increase in the public-spending/GDP ratio is Pareto improving