Even if the long-term interest rate remains lower than the growth rate, there is a limit to the fiscal deficit

When the long-term interest rate is lower than the GDP growth rate, the public debt ratio dynamics is stable (the public debt ratio converges towards a limit value and does not diverge as it would if the interest rate were higher than the growth rate). The implication is that a stable public debt ratio in the long term ensures fiscal solvency at all times. But even a public debt ratio that is stable in the long term can have a maximum value. Keeping within the bounds of this limit requires that: Total fiscal deficit < Maximum public debt ratio × Nominal growth rate Or, equivalently: Primary fiscal deficit < Maximum public debt ratio × (Nominal growth rate - Long term interest rate) There is therefore a limit to the fiscal deficit even if the long-term interest rate is lower than the growth rate. We estimate the tightness of this constraint for large OECD countries.