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CONTRACTIONARY EFFECTS OF GOVERNMENT SPENDING AND WARTIME BRITAIN

Published online by Cambridge University Press:  03 March 2015

Shingo Watanabe
Shingo Watanabe*
Affiliation:
Bank of Japan
*
Please address correspondence to: Shingo Watanabe, Bank of Japan, 2-1-1 Nihonbashi-Hongokucho, Chuo-ku, Tokyo 103-8660, Japan; e-mail: shingo.watanabe@boj.or.jp.
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Abstract

In dynamic general equilibrium models, private output is increased by government spending for goods and services, but decreased by government spending for employment. This paper presents the first evidence for the latter effect by studying the pre-WWII British wartime economy. Britain participated in numerous wars, increasing military employment greatly. British tax-smoothing policy and rare wartime governmental interventions reduce the difficulty of studying the effects of wartime government spending. This paper finds wartime decreases in industrial production, which can be explained by wartime government spending for military employment.

Keywords

Government SpendingEmploymentWarOutput
Type
Articles
Information
Macroeconomic Dynamics , Volume 20 , Issue 4 , June 2016 , pp. 857 - 883
Copyright
Copyright © Cambridge University Press 2015 

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