IDEAS home Printed from https://ideas.repec.org/a/eee/moneco/v20y1987i2p221-247.html
   My bibliography  Save this article

Government spending, interest rates, prices, and budget deficits in the United Kingdom, 1701-1918

Author

Listed:
  • Barro, Robert J.

Abstract

The British data from the early 1700s through World War I provide an unmatched opportunity for studying the effects of temporary changes in government purchases. In this paper I examine the effects of these changes on interest rates, the quantity of money, the price level, and budget deficits. Temporary increases in government purchases--showing up in the sample as increases in military outlays during wartime--had positive effects on long-term interest rates. The effect on the growth rate of money (bank notes) was positive only during the two periods of suspension of the gold standard (1797-1821 and 1914-1918). As long as convertibility of bank notes into specie was maintained, there was no systematic relation of government spending to monetary growth. Similarly, the main interplay between temporary government spending and inflation occurred during the periods of suspension. Temporary changes in military spending accounted for the bulk of budget deficits from the early 1700s through 1918. This association explains the main increases in the ratio of the public debt to GNP, as well as the decreases that typically occurred during peacetime. Over the sample of more than two hundred years, I found only two examples of major budget deficits that were unrelated to wartime -- one associated with compensation payments to slaveowners in 1835-36 and the other with a political dispute over the income tax in 1909-10. Because of the "exogeneity" of these deficits, it is interesting that interest rates showed no special movements at these times.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Barro, Robert J., 1987. "Government spending, interest rates, prices, and budget deficits in the United Kingdom, 1701-1918," Journal of Monetary Economics, Elsevier, vol. 20(2), pages 221-247, September.
    • Handle: RePEc:eee:moneco:v:20:y:1987:i:2:p:221-247
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/0304-3932(87)90015-8
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Judd, Kenneth L, 1985. "Short-run Analysis of Fiscal Policy in a Simple Perfect Foresight Model," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 298-319, April.
    2. Lucas, Robert Jr. & Stokey, Nancy L., 1983. "Optimal fiscal and monetary policy in an economy without capital," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 55-93.
    3. Barro, Robert J, 1979. "On the Determination of the Public Debt," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 940-971, October.
    4. Hall, Robert E., 1980. "Labor supply and aggregate fluctuations," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 12(1), pages 7-33, January.
    5. Finn Kydland & Edward C. Prescott, 1980. "A Competitive Theory of Fluctuations and the Feasibility and Desirability of Stabilization Policy," NBER Chapters, in: Rational Expectations and Economic Policy, pages 169-198, National Bureau of Economic Research, Inc.
    6. Hansen, Lars Peter & Sargent, Thomas J., 1981. "A note on Wiener-Kolmogorov prediction formulas for rational expectations models," Economics Letters, Elsevier, vol. 8(3), pages 255-260.
    7. Plosser, Charles I., 1982. "Government financing decisions and asset returns," Journal of Monetary Economics, Elsevier, vol. 9(3), pages 325-352.
    8. Barsky, Robert B & Summers, Lawrence H, 1988. "Gibson's Paradox and the Gold Standard," Journal of Political Economy, University of Chicago Press, vol. 96(3), pages 528-550, June.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:moneco:v:20:y:1987:i:2:p:221-247. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Haili He). General contact details of provider: http://www.elsevier.com/locate/inca/505566 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.