We consider a general class of endogenous growth models with infinitely lived

households and analyze how different budgetary rules affect the stability of the econ-

omy. We show that a discretionary fiscal policy implies that the government always

violates its inter-temporal budget constraint along a balanced growth path, whereas

a balanced budget rule tends to stabilize the economy. A rule based debt policy

makes the economy converge to the balanced growth path provided the reaction of

the primary surplus to higher public debt is sufficiently large so that the debt to

GDP ratio becomes a mean-reverting process.