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Identifying Fiscal Policy (In)effectiveness from the Differential Counter-Cyclicality of Government Spending in the Interwar Period

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  • Nicolas-Guillaume Martineau

    ()
    (Universite de Sherbrooke)

  • Gregor W. Smith

    ()
    (Queen`s University)

Abstract

Differences across decades in the counter-cyclical stance of fiscal policy can identify whether the growth in government spending affects output growth and so speeds recovery from a recession. We study government-spending reaction functions from the 1920s and 1930s for twenty countries. There are two main findings. First, surprisingly, government spending was less counter-cyclical in the 1930s than in the 1920s. Second, the growth of government spending did not have a significant effect on output growth, so that there is little evidence that this feature of fiscal policy played a stabilizing role in the interwar period.

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File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_1290.pdf
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Bibliographic Info

Paper provided by Queen's University, Department of Economics in its series Working Papers with number 1290.

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Length: 43 pages
Date of creation: May 2014
Date of revision:
Handle: RePEc:qed:wpaper:1290

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Keywords: fiscal policy; business-cycle history; Great Depression; interwar period;

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  12. Alan J. Auerbach & Yuriy Gorodnichenko, 2010. "Measuring the Output Responses to Fiscal Policy," NBER Working Papers 16311, National Bureau of Economic Research, Inc.
  13. Albrecht Ritschl, . "Deficit Spending in the Nazi Recovery, 1933-1938: A Critical Reassessment," IEW - Working Papers 068, Institute for Empirical Research in Economics - University of Zurich.
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  15. Feinstein, Charles H. & Temin, Peter & Toniolo, Gianni, 2008. "The World Economy between the World Wars," OUP Catalogue, Oxford University Press, number 9780195307559, October.
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