Rearmament to the Rescue? New Estimates of the Impact of “Keynesian” Policies in 1930s' Britain

Nicholas F. R. Crafts · Terence C. Mills

70 citations0/0 files storedThe Journal of Economic History

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Monetary Policy and Economic Impact Economic Theory and Policy Fiscal Policy and Economic Growth

Abstract

We report estimates of the fiscal multiplier for interwar Britain based on quarterly data, time-series econometrics, and “defense news.” We find that the government expenditure multiplier was in the range 0.3 to 0.8, much lower than previous estimates. The scope for a Keynesian solution to recession was less than is generally supposed. We find that rearmament gave a smaller boost to real GDP than previously claimed. Rearmament may, however, have had a larger impact than a temporary public works program of similar magnitude if private investment anticipated the need to add capacity to cope with future defense spending.

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2002An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output 1999An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output 2011When Is the Government Spending Multiplier Large?2011Identifying Government Spending Shocks: It's all in the Timing*2010How Big (Small?) are Fiscal Multipliers?2011Macroeconomic Effects From Government Purchases and Taxes *2011Can Government Purchases Stimulate the Economy?1999Fiscal Policy in Good Times and Bad

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