• AK Model
• Dynamic Macroeconomics
• Endogenous Growth
• Fiscal Policy
• Public Debt

The aim of this dissertation is to present a simple theoretical framework in order to study the dynamics of public debt and its interactions with fiscal policy and economic growth. A large part of the macroeconomic literature has analyzed the short run effects of fiscal policy on the debt-to-GDP ratio, often concluding that, when demand-side constraints are taken into account, the impact of a fiscal tightening on the numerator may actually be compromised by a contraction in the growth of GDP. This dissertation shows that such result can hold also in a supply-side context in which there are no explicit assumptions about the presence of involuntary unemployment or the scarcity of the aggregate demand. To elaborate on this idea, I build a macroeconomic model in which the growth of GDP is endogenously induced by the accumulation of physical capital and its dynamics is influenced by the government through the manipulation of the tax rate on income and public investments. Within such framework, the effect of fiscal policy on the dynamics of the debt-to-GDP ratio is often non monotone, strictly dependent on the structural parameters of the economy and strongly influenced by the stability of the equilibrium. The calibration of the model for the Italian, US and German economies and the subsequent simulation exercises show that there is not always a trade-off between growth enhancing policies and the sustainability of public debt: on the contrary, and consistently with the Keynesian literature, the most effective line of action appears to be an increase in the fraction of the GDP devoted to public investments, possibly accompanied by a rise in the tax rate.