Government Policy Response to War-Expenditure Shocks

Fernando Martin

The B.E. Journal of Macroeconomics, 2012, vol. 12, issue 1, 40

Abstract: The U.S. has experienced three episodes in which public expenditure temporarily increased to very high levels: the Civil War, World War I and World War II. These wars share a set of stylized facts regarding the behavior of tax revenue, government debt, primary deficit, inflation and output. I present a theory of government policy determination, whose primary ingredients are intertemporal distortion-smoothing and limited commitment, that matches these regularities qualitatively and displays empirically plausible quantitative behavior.

Keywords: government policy; limited commitment; war shocks; micro founded models of money (search for similar items in EconPapers)
Date: 2012
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Working Paper: Government policy response to war-expenditure shocks (2011)
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DOI: 10.1515/1935-1690.2151

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