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

Published online by Cambridge University Press:  15 November 2013

Nicholas Crafts
Affiliation:
Professor of Economic History, Department of Economics, University of Warwick, Coventry, CV4 7AL, United Kingdom. E-mail: n.crafts@warwick.ac.uk.
Terence C. Mills
Affiliation:
Professor of Applied Statistics and Econometrics, School of Business and Economics, Loughborough University, Leicestershire, LE11 3TU, United Kingdom. E-mail: T.C.Mills@lboro.ac.uk.

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.

Type
Articles
Copyright
Copyright © The Economic History Association 2013 

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Footnotes

We are grateful to Mark Harrison, Tim Hatton, Michael McMahon, Roger Middleton, George Peden, Valerie Ramey, Ken Wallis, participants in seminars at the University of Copenhagen, University of Southern Denmark, and University of Warwick, two anonymous referees, and the editor, Jean-Laurent Rosenthal, for helpful comments. Alexandra Paun provided excellent research assistance. The usual disclaimer applies.

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