Article citationsMore>>

Ghosh, A. R., Kim, J. I., Mendoza, E. G., Ostry, J. D., & Qureshi, M. S. (2013). Fiscal Fatigue, Fiscal Space and Debt Sustainability in Advanced Economies. The Economic Journal, 123, F4-F30.

has been cited by the following article:

• TITLE: Public Debt Dynamics When r g: Stability Is not Guaranteed

  AUTHORS: Yasunori Fujita

  KEYWORDS: Public Debt Dynamics, Debt-to-GDP Ratio, Interest-Growth Differential (r g), Endogenous Interest Rates, Fiscal Sustainability

  JOURNAL NAME: Modern Economy, Vol.17 No.2, February 12, 2026

  ABSTRACT: This paper reexamines the stability of public debt dynamics in economies where real interest rate is lower than real economic growth rate (r g). While this condition is often interpreted as ensuring debt sustainability, we develop a simple dynamic model in which the real interest rate depends endogenously on public-debt-to-GDP ratio. Using difference equations, we show that a low-debt steady state can become unstable if the debt ratio temporarily exceeds a critical threshold. Once this threshold is crossed, the endogenous rise in interest rates destabilizes debt dynamics and leads to divergence, even without expectation-driven crises or default risk. The results suggest that the r g condition should be viewed as a local, state-dependent criterion rather than a guarantee of long-run fiscal safety.