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WORKING PAPER

FATAL AUSTERITY | with Alexander Kriwoluzky, Moritz Schularick, Lucas ter Steege

Abstract: This paper quantifies the macroeconomic consequences of the fiscal austerity program that preceded the power grab of the Nazi party in Germany in 1933. Between 1930 and 1932, German Chancellor Brüning enacted a series of large expenditure cuts and tax increases against the backdrop of a depressed economy and the rise of political extremism. We use a novel granular fiscal dataset to identify the macroeconomic effects of Brüning’s austerity policies. We find that the austerity shocks reduced German GDP by more than four percent and caused an increase in unemployment by almost two million, paving the way for the success of extremist parties.
May 2024
April 2024
ACTIVE, OR PASSIVE? REVISITING THE ROLE OF FISCAL POLICY IN THE GREAT INFLATION | with Alexander Kriwoluzky
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Abstract: Which role did fiscal policy play during the Great In ation? We estimate a DSGE model with three distinct monetary/fiscal policy regimes using a Sequential Monte Carlo (SMC) algorithm to evaluate the posterior distribution. In contrast to standard sampling algorithms, SMC enables us to determine the monetary/fiscal policy mix by sampling simultaneously from all regions of the parameter space, which makes comparing model fit across regimes unnecessary. A dierentiated perspective results: pre-Volcker macroeconomic dynamics were similarly driven by passive monetary/passive fiscal policy and fiscal dominance. Fiscal policy actions, especially government spending, were critical in the pre-Volcker in ation build-up.

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