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

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  • Crafts, Nicholas

    (Department of Economics, University of Warwick)

  • Mills, Terence

    (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 0.3 to 0.8, much lower than previous estimates. The scope for a Keynesian solution to recession was less than is generally supposed. We find that rearmament gave a smaller boost to real GDP than previously claimed. Rearmament may, however, have had a larger impact than a temporary public works program of similar magnitude if private investment anticipated the need to add capacity to cope with future defense spending. JEL classification: defense news ; multiplier ; public works ; rearmament JEL codes: E62 ; N14

Suggested Citation

  • Crafts, Nicholas & Mills, Terence, 2013. "Rearmament to the Rescue? New Estimates of the Impact of ‘Keynesian’ Policies in 1930s’ Britain," The Warwick Economics Research Paper Series (TWERPS) 1018, University of Warwick, Department of Economics.
  • Handle: RePEc:wrk:warwec:1018
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    References listed on IDEAS

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    1. Valerie A. Ramey, 2012. "Government Spending and Private Activity," NBER Chapters,in: Fiscal Policy after the Financial Crisis, pages 19-55 National Bureau of Economic Research, Inc.
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    Citations

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    Cited by:

    1. 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.
    2. Lennard, Jason, 2018. "Uncertainty and the Great Slump," Lund Papers in Economic History 170, Lund University, Department of Economic History.
    3. repec:eee:dyncon:v:78:y:2017:i:c:p:54-87 is not listed on IDEAS
    4. Nicholas Crafts, 2013. "Returning to Growth: Policy Lessons from History," Fiscal Studies, Institute for Fiscal Studies, vol. 34(2), pages 255-282, June.
    5. 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).
    6. Barry Eichengreen, 2016. "The Great Depression in a Modern Mirror," De Economist, Springer, vol. 164(1), pages 1-17, March.
    7. 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.
    8. Boubaker, Sabri & Nguyen, Duc Khuong & Paltalidis, Nikos, 2016. "Fiscal Policy Interventions at the Zero Lower Bound," MPRA Paper 84673, University Library of Munich, Germany, revised Aug 2017.
    9. repec:ucp:jpolec:doi:10.1086/696277 is not listed on IDEAS
    10. 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.
    11. 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.
    12. 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

    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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