The Role of the State and Harrod's >i>Economic Dynamics>/i>

This paper deals with Harrod's fiscal policies to raise the warranted growth rate toward the natural growth rate. Harrod shows that an increase in the budget deficit/GDP ratio raises the short-run growth rate while lowering the warranted growth rate. In order to raise the warranted growth rate Harrod recommends higher tax rates and an increase in public investment. However, given Harrod's own framework these are not unproblematic proposals. This paper resolves some ambiguities in Harrod's analysis and shows how taxation policy, either singly or in combination with a public investment strategy, can raise the warranted growth rate. Following Keynes and others it suggests the relevance of capital budgeting and shows how the warranted growth can be raised via appropriate capital budgeting policies.