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Identifying fiscal policy (in)effectiveness from the differential counter-cyclicality of government spending in the interwar period

Listed author(s):
  • Nicolas-Guillaume Martineau
  • Gregor W. Smith

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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Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 48 (2015)
Issue (Month): 4 (November)
Pages: 1291-1320

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Handle: RePEc:cje:issued:v:48:y:2015:i:4:p:1291-1320
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