THE LAST SHALL BE 1ST - EFFICIENT CONSTRAINTS ON FOREIGN BORROWING IN A MODEL OF ENDOGENOUS GROWTH

In an open economy with a trade-off between production and productivity growth and with externalities in productivity growth, it is shown that a restriction on foreign borrowing in the short-run can increase welfare. In the long-run a subsidy is efficient. When the fiscal instrument is the tax on foreign borrowing, it is possible that non-dampened cycles of tax rates are efficient. © 1992.