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How Occupied France Financed Its Own Exploitation in World War II

  • Eugene N. White
  • Filippo Occhino
  • Kim Oosterlinck

The occupation payments made by France to Nazi Germany between 1940 and 1944 represent one of the largest recorded international transfers and contributed significantly to financing the overall German war effort. Using a neoclassical growth model that incorporates essential features of the occupied economy and the postwar stabilization, we assess the welfare costs of French policies that funded payments to Germany. Occupation payments required a 16 percent reduction of consumption for twenty years, with the draft of labor to Germany and wage and price controls adding substantially to this burden. Vichy%u2019s postwar debt overhang would have demanded large budget surpluses; but inflation, which erupted after Liberation, reduced the debt well below its steady state level and redistributed the adjustment costs. The Marshall Plan played only a minor direct role, and international credits helped to substantially lower the nation%u2019s burden.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.97.2.295
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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 97 (2007)
Issue (Month): 2 (May)
Pages: 295-299

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Handle: RePEc:aea:aecrev:v:97:y:2007:i:2:p:295-299
Note: DOI: 10.1257/aer.97.2.295
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  1. Rebelo, Sérgio, 2005. "Real Business Cycle Models: Past, Present and Future," CEPR Discussion Papers 5384, C.E.P.R. Discussion Papers.
  2. Kim Oosterlinck, 2003. "The Bond Market and the Legitimacy of Vichy France," Working Papers CEB 03-003.RS, ULB -- Universite Libre de Bruxelles.
  3. Mankiw, N. Gregory, 1987. "The optimal collection of seigniorage : Theory and evidence," Journal of Monetary Economics, Elsevier, vol. 20(2), pages 327-341, September.
  4. Ellen R. McGrattan & Lee E. Ohanian, 2006. "Does Neoclassical Theory Account for the Effects of Big Fiscal Shocks? Evidence From World War II," NBER Working Papers 12130, National Bureau of Economic Research, Inc.
  5. Michael D. Bordo & Dominique Simard & Eugene White, 1994. "France and the Bretton Woods International Monetary System: 1960-1968," NBER Working Papers 4642, National Bureau of Economic Research, Inc.
  6. Rockoff, Hugh, 1981. "Price and Wage Controls in Four Wartime Periods," The Journal of Economic History, Cambridge University Press, vol. 41(02), pages 381-401, June.
  7. Piketty, Thomas, 2001. "Income Inequality in France 1901-98," CEPR Discussion Papers 2876, C.E.P.R. Discussion Papers.
  8. Ohanian, Lee E, 1997. "The Macroeconomic Effects of War Finance in the United States: World War II and the Korean War," American Economic Review, American Economic Association, vol. 87(1), pages 23-40, March.
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