Czechoslovak Fiscal Policies in the Great Depression

T tHE assessment of European fiscal policies during the interwar period has been largely neglected by economic historians. One of the most obvious reasons is a lack of adequate uniformity of budget data for sufficiently longtime periods to carry out a meaningful economic analysis. Furthermore, the severe instability of currencies in many countries after World War I focused attention on monetary policies, which were a traditional governmental policy tool and considerably easier to study, rather than explicit fiscal policies. In fact, however, during the interwar period governmental budgets represented a sizeable share of national expenditures in most of the economically developed European nations. The size of the budgets vis-a-vis the G.N.P. was much larger than before World War I, and we should expect that the budget impact on aggregate demand might be considerable. This article is an attempt to explore the relation between fiscal policies and aggregate demand of one of these nations-the Czechoslovak Republic-during the depression and recovery of the I930s. On the basis of a simple econometric model of the economy, the actual contribution of the government sector to expansionary or contractionary forces will be measured. It will become apparent that, contrary to generally accepted views, the government played a positive role in dampening the business cycle. To place the Czechoslovak experience in context, it must be noted that the country emerged as an independent nation from the ruins of the AustroHungarian Empire and became one of the most stable countries in central Europe during the interwar years, both politically and economically. FromI 920 to 1937, its G.N.P. grew at an average annual rate of 3 per cent, which compares quite favourably with growth rates in other nations in central and western Europe, as shown in Table i. Its record was particularly good in the postwar decade: by I929 its aggregate output was 52 per cent above the I9I3 level and 68 per cent above the level inI 920. In the I 93os, however, Czechoslovak output fell further and recovered more slowly than that of most other European countries; only France and Austria had a worse economic record during this period. Although much responsibility for such a drastic decline has been attributed to Czechoslovakia's considerable dependence on foreign trade and especially on trade with those central and east European countries which suffered particularly severely from the depression,' many other nations in Europe faced similar problems and in this respect Czechoslovakia was not unique

Depression (economics) · Economics · Great Depression · Keynesian economics · Political science · Economic and Fiscal Studies · Economic Growth and Productivity · European Monetary and Fiscal Policies · Fiscal Policies and Political Economy · Law · Post-Communist Economic and Political Transition

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