This paper considers a fixed deficit ratio in an endogenous growth model.
It is shown that for given deficit ratio there are indeed two steady states, in
which the debt-output ratio stays constant. One of these steady states is stable;
the other is unstable. However, if the deficit ratio exceeds a critical level then
there is no steady state. In addition, the model allows to study transitional
dynamics induced by a change in the deficit ratio.
The rest of the paper is organized in the following way: Section 2 presents
the model. Section 3 analyzes stability. Section 4 probes into the effects of an
increase in the deficit ratio. Section 5 compares the main results to some
basic results derived from a simple model with a fixed primary deficit ratio.
Finally, Section 6 summarizes the results