Taxes and growth: new narrative evidence from interwar Britain

Cloyne, James, Dimsdale, Nicholas and Postel-Vinay, Natacha (2023) Taxes and growth: new narrative evidence from interwar Britain. Review of Economic Studies. ISSN 0034-6527

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Abstract

The impact of fiscal policy on economic activity is still a matter of great debate. And, ever since Keynes first commented on it, interwar Britain, 1918–39, has remained a particularly interesting and contentious case—not least because of its high-debt environment and turbulent business cycle. This debate has often focused on the effects of government spending, but little is known about the effects of tax changes. In fact, a number of tax reforms in the period focused on long-term and social objectives, often reflecting the personality of British Chancellors. Based on extensive historiographical research, we apply a narrative approach to the interwar period in Britain and isolate a new series of exogenous tax changes. We find that tax changes have a sizable effect on GDP, with multipliers exceeding 2 within two years. Our estimates provide new evidence on the effects of tax changes, contribute to the historical debate about fiscal policy in the interwar period and are also consistent with the sizable tax multipliers found after World War II.

Item Type:	Article
Additional Information:	© 2023 The Author(s)
Divisions:	Economic History
JEL classification:	E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Employment, and Investment > E23 - Production E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations; Cycles E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy Formation, Macroeconomic Aspects of Public Finance, Macroeconomic Policy, and General Outlook > E62 - Fiscal Policy; Public Expenditures, Investment, and Finance; Taxation H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H20 - General H - Public Economics > H3 - Fiscal Policies and Behavior of Economic Agents > H30 - General N - Economic History > N1 - Macroeconomics and Monetary Economics; Growth and Fluctuations > N10 - General, International, or Comparative N - Economic History > N4 - Government, War, Law, and Regulation > N44 - Europe: 1913-
Date Deposited:	30 May 2024 14:15
Last Modified:	13 Jun 2024 10:27
URI:	http://eprints.lse.ac.uk/id/eprint/123706

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