Over the Top: U.K. World War I Finance and Its Aftermath

Shaun Vahey and James Nason

No 22, Computing in Economics and Finance 2005 from Society for Computational Economics

Abstract: We argue that the fiscal policies adopted early in World War I by the U.K. were responsible for its poor economic performance during the interwar period. In September 1915, the U.K. embarked on a set of non-tax-smoothing policies collectively known as the McKenna rule. The key dictum of the McKenna rule was to raise tax rates on labor and capital income in response to contemporaneous movements in government spending. The greater reliance on income taxation produced distortions in household and firm decision making that have not previously been studied. We construct and calibrate a real business cycle model to assess quantitatively the impact of the McKenna rule. The model generates paths for aggregate variables that resembles actual U.K. economic activity from 1916 onward

Keywords: Fiscal Policy; War Finance; Tax Smoothing; Economic Growth. (search for similar items in EconPapers)
JEL-codes: E32 E44 E62 (search for similar items in EconPapers)
Date: 2005-11-11
References: Add references at CitEc
Citations: View citations in EconPapers (1)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sce:scecf5:22

Access Statistics for this paper

More papers in Computing in Economics and Finance 2005 from Society for Computational Economics Contact information at EDIRC.
Bibliographic data for series maintained by Christopher F. Baum ().