199/2014 Nicholas Crafts

This paper examines contrasting experiences of the United Kingdom in addressing high public debt to GDP ratios following major wars. A clear message is that interest rate/growth rate differentials were more important than primary budget surpluses for the different outcomes. The debt to GDP ratio fell very rapidly under financial repression following World War II but remained stubbornly high despite large budget surpluses with price deflation after World War I. Implications for policymakers today are that averting price deflation is a high priority and that supply-side policies that raise growth could play an important part in debt reduction.

Economic History

Fiscal Studies, Journal of Applied Public Economics

http://dx.doi.org/10.1111/j.1475-5890.2015.12064