In this paper our objective is to analyze sustainable debt policy rules and economic growth using a model of endogenous economic growth theory. For the government it is possible to run into debt, but, the primary surplus is a positive linear function of the debt-to-GDP ratio which guarantees that public debt is sustainable. We analyze different sustainable debt policies in this small open economy model of endogenous growth with public capital accumulation, as well we take transitions into account. We investigate the characteristics and stability of the steady state and we analyze the effects on welfare for the different debt policies. * I would like to thank Alfred Greiner and Christiane Clemens for the inspiring ideas and the support received in various meetings. I am indebted to António Afonso, Matthias Schön, Paolo Pasimeni and other participants for very competent and detailed comments during the INFER Workshop on New Challenges for Fiscal Policy which helped to improve the paper.

In this paper our objective is to analyze sustainable debt policy rules and economic growth using a model of endogenous economic growth theory. For the government it is possible to run into debt, but, the primary surplus is a positive linear function of the debt-to-GDP ratio which guarantees that public debt is sustainable. We analyze different sustainable debt policies in this small open economy model of endogenous growth with public capital accumulation, as well we take transitions into account. We investigate the characteristics and stability of the steady state and we analyze the effects on welfare for the different debt policies. * I would like to thank Alfred Greiner and Christiane Clemens for the inspiring ideas and the support received in various meetings. I am indebted to António Afonso, Matthias Schön, Paolo Pasimeni and other participants for very competent and detailed comments during the INFER Workshop on New Challenges for Fiscal Policy which helped to improve the paper.

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