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Rearmament to the Rescue? New Estimates of the Impact of ‘Keynesian’ Policies in 1930s’ Britain

Author

Listed:
  • Nicholas Crafts

    () (University of Warwick)

  • Terence C. Mills

    () (Loughborough University)

Abstract

We report estimates of the fiscal multiplier for interwar Britain based on quarterly data, time-series econometrics, and ‘defense news’. We find that the government expenditure multiplier was in the range 0.5 to 0.8, much lower than previous estimates. The scope for a Keynesian solution to recession was much lower than is generally supposed. We do find that rearmament gave a substantial boost to real GDP after 1935 but this was because the private sector responded to news of massive future defense spending and does not imply that the multiplier effect of temporary public works programs would have been large.

Suggested Citation

  • Nicholas Crafts & Terence C. Mills, 2012. "Rearmament to the Rescue? New Estimates of the Impact of ‘Keynesian’ Policies in 1930s’ Britain," Working Papers 0031, European Historical Economics Society (EHES).
    • Handle: RePEc:hes:wpaper:0031
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    References listed on IDEAS

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    Cited by:

    1. repec:eee:ecolet:v:173:y:2018:i:c:p:92-96 is not listed on IDEAS
    2. Green, Georgina, 2018. "Monetary policy spillovers in the first age of financial globalisation: a narrative VAR approach 1884–1913," Bank of England working papers 718, Bank of England.
    3. Lennard, Jason, 2018. "Uncertainty and the Great Slump," Lund Papers in Economic History 170, Lund University, Department of Economic History, revised 19 Jul 2018.
    4. repec:eee:dyncon:v:78:y:2017:i:c:p:54-87 is not listed on IDEAS
    5. Nicholas Crafts, 2013. "Returning to Growth: Policy Lessons from History," Fiscal Studies, Institute for Fiscal Studies, vol. 34(2), pages 255-282, June.
    6. Crafts, Nicholas, 2012. "UK Defence News, 1920-1938: Estimates Based on Contemporary Sources," CAGE Online Working Paper Series 104, Competitive Advantage in the Global Economy (CAGE).
    7. Barry Eichengreen, 2016. "The Great Depression in a Modern Mirror," De Economist, Springer, vol. 164(1), pages 1-17, March.
    8. Rainer Fremdling & Reiner Staeglin, 2014. "Editor's choice Output, national income, and expenditure: an input–output table of Germany in 1936," European Review of Economic History, Oxford University Press, vol. 18(4), pages 371-397.
    9. Jari Eloranta, 2015. "Pro Bono Publico? Demand for military spending between the World Wars," Working Papers 15016, Economic History Society.
    10. repec:bla:ecinqu:v:57:y:2019:i:2:p:1141-1162 is not listed on IDEAS
    11. Boubaker, Sabri & Nguyen, Duc Khuong & Paltalidis, Nikos, 2018. "Fiscal policy interventions at the zero lower bound," Journal of Economic Dynamics and Control, Elsevier, vol. 93(C), pages 297-314.
    12. repec:ucp:jpolec:doi:10.1086/696277 is not listed on IDEAS
    13. Valerie A. Ramey & Sarah Zubairy, 2018. "Government Spending Multipliers in Good Times and in Bad: Evidence from US Historical Data," Journal of Political Economy, University of Chicago Press, vol. 126(2), pages 850-901.
    14. Sebastian Gechert & Ansgar Rannenberg, 2014. "Are Fiscal Multipliers Regime-Dependent? A Meta Regression Analysis," IMK Working Paper 139-2014, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    15. Shibamoto, Masahiko & Shizume, Masato, 2014. "Exchange rate adjustment, monetary policy and fiscal stimulus in Japan's escape from the Great Depression," Explorations in Economic History, Elsevier, vol. 53(C), pages 1-18.
    16. Cloyne, James & Dimsdale, Nicholas & Postel-Vinay, Natacha, 2018. "Taxes and Growth: New Narrative Evidence from Interwar Britain," CEPR Discussion Papers 12962, C.E.P.R. Discussion Papers.
    17. 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 Univeristy of Manchester.

    More about this item

    Keywords

    defense news; multiplier; public works; rearmament;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • N14 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: 1913-

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