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Identifying fiscal policy (in)effectiveness from the differential counter‐cyclicality of government spending in the interwar period
Author(s) -
Martineau NicolasGuillaume,
Smith Gregor W.
Publication year - 2015
Publication title -
canadian journal of economics/revue canadienne d'économique
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.773
H-Index - 69
eISSN - 1540-5982
pISSN - 0008-4085
DOI - 10.1111/caje.12151
Subject(s) - economics , government spending , fiscal policy , government (linguistics) , recession , interwar period , differential (mechanical device) , monetary economics , macroeconomics , economic policy , keynesian economics , market economy , welfare , world war ii , political science , philosophy , linguistics , engineering , law , aerospace engineering
Abstract Differences across decades in the counter‐cyclical stance of fiscal policy can identify whether the growth in government spending affects output growth and so speeds recovery from a recession. We study government‐spending reaction functions from the 1920s and 1930s for twenty countries. There are two main findings. First, surprisingly, government spending was less counter‐cyclical in the 1930s than in the 1920s. Second, the growth of government spending did not have a significant effect on output growth, so that there is little evidence that this feature of fiscal policy played a stabilizing role in the interwar period.