
Contents
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8.1. Introduction 8.1. Introduction
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8.2. Britain in the 1930s: Some Stylized Facts 8.2. Britain in the 1930s: Some Stylized Facts
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8.2.1. The macroeconomy 8.2.1. The macroeconomy
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8.2.2. Policy regime and policy setting 8.2.2. Policy regime and policy setting
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8.3. Interwar Public Finances 8.3. Interwar Public Finances
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8.3.1. Democratic politics and public expenditure 8.3.1. Democratic politics and public expenditure
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8.3.2. The Geddes ‘axe’ and the quest for budgetary stability 8.3.2. The Geddes ‘axe’ and the quest for budgetary stability
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8.3.3. Debt dynamics 8.3.3. Debt dynamics
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8.4. Policy: Narrative and Assessment 8.4. Policy: Narrative and Assessment
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8.4.1. Monetary policy 8.4.1. Monetary policy
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8.4.2. Fiscal policy 8.4.2. Fiscal policy
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8.5. Expansionary Fiscal Contraction: The May Committee 8.5. Expansionary Fiscal Contraction: The May Committee
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8.5.1. Overriding the automatic stabilizers 8.5.1. Overriding the automatic stabilizers
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8.5.2. Expansionary fiscal contraction: now and then 8.5.2. Expansionary fiscal contraction: now and then
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8.5.3. The May committee: fiscal consolidation and macroeconomic impact 8.5.3. The May committee: fiscal consolidation and macroeconomic impact
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8.6. Conclusions 8.6. Conclusions
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Bibliography Bibliography
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8 8 Can Contractionary Fiscal Policy be Expansionary? Consolidation, Sustainability, and Fiscal Policy Impact in Britain in the 1930s
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Published:February 2013
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Abstract
This chapter offers a guide to how the British experience of 1929–39 may provide macroeconomic lessons for the present, once regard is made for historical contingency and context. It re-examines the forces that shaped policy, and what we know about policy impact, focusing on: the issue of fiscal consolidation amidst a cyclical downturn; whether the expansionary fiscal contraction (EFC) hypothesis might provide insights for further understanding this earlier age and vice versa; and debt dynamics and their implications for monetary and fiscal policy. Finding that Britain in the 1930s may be a textbook example of monetary expansion made possible by fiscal conservatism, the chapter highlights the dangers of being a member of a fixed exchange regime in turbulent times and the risks of deepening and lengthening a depression if the automatic stabilizers are over-ridden. No supporting evidence is provided by the interwar British experience for the EFC hypothesis in current circumstances.
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