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

Nicholas Crafts and Terence C Mills
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Terence C Mills: University of Loughborough

CAGE Online Working Paper Series from Competitive Advantage in the Global Economy (CAGE)

Abstract: We report estimates of the fiscal multiplier for interwar Britain based on quarterly data and timeseries econometrics. We find that the government-expenditure multiplier was in the range 0.3 to 0.9 even during the period that 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 that deficit-financed government spending would have improved public finances enough to pay for the interest on the extra debt

Keywords: defence news; Keynesian solution; multiplier; public works; self-defeating austerity (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (4)

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Working Paper: Fiscal Policy in a Depressed Economy: Was There a 'Free Lunch' in 1930s' Britain? (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:cge:wacage:106

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