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Identifying Fiscal Policy (In)effectiveness from the Differential Counter-Cyclicality of Government Spending in the Interwar Period

  • Nicolas-Guillaume Martineau

    ()

    (Universite de Sherbrooke)

  • Gregor W. Smith

    ()

    (Queen`s University)

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.

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File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_1290.pdf
File Function: First version 2014
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Paper provided by Queen's University, Department of Economics in its series Working Papers with number 1290.

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Length: 43 pages
Date of creation: May 2014
Date of revision:
Handle: RePEc:qed:wpaper:1290
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  1. Barry J. Eichengreen & Jeffrey Sachs, 1984. "Exchange Rates and Economic Recovery in the 1930s," NBER Working Papers 1498, National Bureau of Economic Research, Inc.
  2. Miguel Almunia & Agustín S. Bénétrix & Barry Eichengreen & Kevin H. O'Rourke & Gisela Rua, 2009. "From Great Depression to Great Credit Crisis: Similarities, Differences and Lessons," The Institute for International Integration Studies Discussion Paper Series iiisdp303, IIIS.
  3. Caroline M. Betts & Michael D. Bordo & Angela Redish, 1996. "A Small Open Economy in Depression: Lessons from Canada in the 1930s," Canadian Journal of Economics, Canadian Economics Association, vol. 29(1), pages 1-36, February.
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  5. Choudhri, Ehsan U & Kochin, Levis A, 1980. "The Exchange Rate and the International Transmission of Business Cycle Disturbances: Some Evidence from the Great Depression," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 12(4), pages 565-74, November.
  6. Jonung, Lars, 1979. "Knut wicksell's norm of price stabilization and Swedish monetary policy in the 1930's," Journal of Monetary Economics, Elsevier, vol. 5(4), pages 459-496, October.
  7. Albrecht Ritschl, . "Deficit Spending in the Nazi Recovery, 1933-1938: A Critical Reassessment," IEW - Working Papers 068, Institute for Empirical Research in Economics - University of Zurich.
  8. Robert J. Barro & Charles J. Redlick, 2011. "Macroeconomic Effects From Government Purchases and Taxes," The Quarterly Journal of Economics, Oxford University Press, vol. 126(1), pages 51-102.
  9. Ben S. Bernanke, 1994. "The Macroeconomics of the Great Depression: A Comparative Approach," NBER Working Papers 4814, National Bureau of Economic Research, Inc.
  10. Christina D. Romer, 1991. "What Ended the Great Depression?," NBER Working Papers 3829, National Bureau of Economic Research, Inc.
  11. Gauti B. Eggertsson, 2005. "Great expectations and the end of the depression," Staff Reports 234, Federal Reserve Bank of New York.
  12. Barry Eichengreen, 2004. "Viewpoint: Understanding the Great Depression," Canadian Journal of Economics, Canadian Economics Association, vol. 37(1), pages 1-27, February.
  13. Feinstein, Charles H. & Temin, Peter & Toniolo, Gianni, 2008. "The World Economy between the World Wars," OUP Catalogue, Oxford University Press, number 9780195307559, March.
  14. Robert J. Gordon & Robert Krenn, 2010. "The End of the Great Depression 1939-41: Policy Contributions and Fiscal Multipliers," NBER Working Papers 16380, National Bureau of Economic Research, Inc.
  15. Cha, Myung Soo, 2003. "Did Takahashi Korekiyo Rescue Japan from the Great Depression?," The Journal of Economic History, Cambridge University Press, vol. 63(01), pages 127-144, March.
  16. Alan J. Auerbach & Yuriy Gorodnichenko, 2012. "Measuring the Output Responses to Fiscal Policy," American Economic Journal: Economic Policy, American Economic Association, vol. 4(2), pages 1-27, May.
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