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Editor's choice Self-defeating austerity? Evidence from 1930s' Britain

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  • Nicholas Crafts
  • Terence C. Mills

Abstract

Self-defeating austerity entails "perverse effects" of fiscal consolidation such that fiscal indicators deteriorate. Inter alia, this depends on the size of the fiscal multiplier as Keynes (1933. The Means to Prosperity. London: Macmillan) underlined. We find that the government-expenditure multiplier was less than 1 in 1930s' Britain. Austerity was not self-defeating in the long run and even its initial impact probably did not raise the public debt-to-GDP ratio. In the later 1930s, there was a "fiscal free lunch" in that deficit-financed government spending would have improved public finances enough to pay for the interest on the extra debt.

Suggested Citation

  • Nicholas Crafts & Terence C. Mills, 2015. "Editor's choice Self-defeating austerity? Evidence from 1930s' Britain," European Review of Economic History, European Historical Economics Society, vol. 19(2), pages 109-127.
    • Handle: RePEc:oup:ereveh:v:19:y:2015:i:2:p:109-127.
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    File URL: http://hdl.handle.net/10.1093/ereh/heu024
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    Cited by:

    1. Postel-Vinay, Natacha & Cloyne, James & Dimsdale, Nicholas, 2018. "Taxes and Growth: New Narrative Evidence from Interwar Britain," CEPR Discussion Papers 12962, C.E.P.R. Discussion Papers.
    2. George Chouliarakis & Tadeusz Gwiazdowski & Sophia Lazaretou, 2016. "The Effect of Fiscal Policy on Output in Times of Crisis and Prosperity: Historical Evidence From Greece ," Centre for Growth and Business Cycle Research Discussion Paper Series 230, Economics, The University of Manchester.

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