This paper raises questions about austerity policies by investigating the effects of the state's tax and expenditure policies on the warranted growth rate. It proposes two mechanisms to raise the warranted growth rate in the event that there is long-run unemployment. First, it incorporates Pasinetti's taxation function into Harrod's growth framework to show how, with an unbalanced budget, an increase in any kind of tax rate, including the tax rate on profits, will raise the warranted path. Such a policy can be accompanied by an increase in aggregate government spending. Second, by introducing a public investment function and, following Keynes, by assuming that the government's expenditures are split into a current and a capital budget, it shows that an increase in capacity-augmenting investment by state enterprises can also raise the warranted path. In other words, judicious tax and expenditure policies provide the basis for increases in government spending, including a greater degree of capacity-augmenting public investment. The paper thus formalizes Keynes's proposals regarding the socialization of investment and shows how this can be accomplished via appropriate compositional changes in government spending and taxation policies.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)