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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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  • Martineau, Nicolas-Guillaume
  • Smith, Gregor W.

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

  • Martineau, Nicolas-Guillaume & Smith, Gregor W., 2014. "Identifying Fiscal Policy (In)effectiveness from the Differential Counter-Cyclicality of Government Spending in the Interwar Period," Queen's Economics Department Working Papers 274554, Queen's University - Department of Economics.
    • Handle: RePEc:ags:quedwp:274554
    DOI: 10.22004/ag.econ.274554
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