We report estimates of the fiscal multiplier for interwar Britain based on quarterly data and timeseries
econometrics. We find that the government-expenditure multiplier was in the range 0.3 to
0.9 even during the period that interest rates were at the lower bound. The scope for a ‘Keynesian
solution’to recession was much less than is generally supposed. In the later 1930s but not before
Britain’s exit from the gold standard, there was a ‘fiscal free lunch’in that deficit-financed
government spending would have improved public finances enough to pay for the interest on the
extra debt
