Taxes and Growth: New Narrative Evidence from Interwar Britain

James Cloyne, Nicholas Dimsdale and Natacha Postel-Vinay

No 24659, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The impact of fiscal policy on economic activity is still a matter of great debate. And, ever since Keynes first commented on it, interwar Britain, 1918- 1939, has remained a particularly contentious case | not least because of its high debt environment and turbulent business cycle. This debate has often focused on the effects of government spending, but little is known about the effects of tax changes. In fact, a number of tax reforms in the period focused on long-term and social objectives, often reflecting the personality of British Chancellors. Based on extensive historiographical research, we apply a narrative approach to the interwar period in Britain and isolate a new series of exogenous tax changes. We find that tax changes have a sizable effect on GDP, with multipliers around 0.5 on impact and exceeding 2 within two years. Our estimates contribute to the historical debate about fiscal policy in the interwar period and are remarkably similar to the sizable tax multipliers found after WWII.

JEL-codes: E32 E62 H2 N1 N44 (search for similar items in EconPapers)
Date: 2018-05
New Economics Papers: this item is included in nep-his, nep-mac, nep-pbe and nep-pub
Note: ME
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Published as James Cloyne & Nicholas Dimsdale & Natacha Postel-Vinay, 2024. "Taxes and Growth: New Narrative Evidence from Interwar Britain," Review of Economic Studies, vol 91(4), pages 2168-2200.

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Journal Article: Taxes and Growth: New Narrative Evidence from Interwar Britain (2024)
Working Paper: Taxes and Growth: New Narrative Evidence from Interwar Britain (2018)
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