Fiscal Policy in a Depressed Economy: Was There a 'Free Lunch' in 1930s' Britain?

Nicholas Crafts and Terence Mills

No 9273, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We report estimates of the fiscal multiplier for interwar Britain based on quarterly data and time-series econometrics. We find that the government-expenditure multiplier was in the range 0.3 to 0.9 even during the period when interest rates were at the lower bound. The scope for a 'Keynesian solution' to recession was much less than is generally supposed. In the later 1930s but not before Britain's exit from the gold standard, there was a 'fiscal free lunch' in the sense that deficit-financed government spending would have improved public finances enough to pay for the interest onthe extra debt.

Keywords: Defence news; Keynesian solution; Multiplier; Public works; Self-defeating austerity (search for similar items in EconPapers)
JEL-codes: E62 N14 (search for similar items in EconPapers)
Date: 2013-01
New Economics Papers: this item is included in nep-his and nep-mac
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Citations: View citations in EconPapers (6)

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Working Paper: Fiscal Policy in a Depressed Economy: Was There a ‘Free Lunch’ in 1930s’ Britain? (2012)
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