FISCAL-POLICY AND EMPLOYMENT IN INTERWAR BRITAIN - SOME EVIDENCE FROM A NEW MODEL

This paper presents a new model of the British economy in the interwar period. The model is used for counterfactual simulations which are designed to shed light on major controversies over economic policy. In this way the claim made by Henderson and Keynes that expenditure on public works could have reduced unemployment can be tested against the opposing Treasury View which emphasized the importance of crowding-out effects. The effect of a change in the replacement ratio is examined, which is relevant to the controversy on the extent to which unemployment was induced by the benefit system and also the determinants of the natural rate of unemployment in the interwar period.