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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
  • Gregor W. Smith

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.

Suggested Citation

  • Nicolas-Guillaume Martineau & Gregor W. Smith, 2015. "Identifying fiscal policy (in)effectiveness from the differential counter-cyclicality of government spending in the interwar period," Canadian Journal of Economics, Canadian Economics Association, vol. 48(4), pages 1291-1320, November.
  • Handle: RePEc:cje:issued:v:48:y:2015:i:4:p:1291-1320
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    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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