Fiscal policy under constraints: fiscal capacity and austerity during the Great Depression

Andrea Papadia*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review


The Great Depression was characterized by widespread fiscal policy mistakes in the form of a contractionary or insufficiently expansionary fiscal stance. Despite this general conclusion, there were large differences in the conduct of fiscal policy between countries. I find that a higher degree of fiscal capacity helped countries run less procyclical fiscal policies by allowing them to borrow more extensively. Lower borrowing costs only partially explain this finding. Taken together, the results indicate that interwar governments were constrained in their policies by past investments in fiscal capacity, and not just by Gold Standard membership, ideology, and inadequate knowledge, as commonly held in the literature.
Original languageEnglish
Pages (from-to)90-118
Number of pages29
JournalThe Economic History Review
Issue number1
Early online date19 Apr 2023
Publication statusPublished - 1 Feb 2024

Bibliographical note

© 2023 The Authors.

Cite this