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Title: Fiscal Policy in a Depressed Economy: Was There a 'Free Lunch' in 1930s' Britain?

Author(s): Nicholas Crafts and Terence C Mills

Publication Date: January 2013

Keyword(s): defence news, Keynesian solution, multiplier, public works and self-defeating austerity

Programme Area(s): Economic History

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

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Bibliographic Reference

Crafts, N and Mills, T. 2013. 'Fiscal Policy in a Depressed Economy: Was There a 'Free Lunch' in 1930s' Britain?'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=9273