Taking the long view : using civil and military spending shocks from 1879 to 2018 to estimate the UK’s government spending multiplier

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Sousa, Joao P. (2025) Taking the long view : using civil and military spending shocks from 1879 to 2018 to estimate the UK’s government spending multiplier. Discussion paper. University of Strathclyde, Glasgow.

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Abstract

I use a novel dataset compiled from archival research in the UK Parliament with 140 years (1879 to 2018) of in-year government spending shocks, which are unlikely to be anticipated due to the UK’s idiosyncratic budget process — an assertion supported by statistical tests on the shocks. I find a multiplier of 0.44 on impact and 0.47 in the long run, along with some evidence of larger stimulative effects from civil spending shocks at short horizons relative to military spending shocks. This corroborates for the UK that the Second World War’s effect on output was due to its size rather than composition. The findings also imply that a budget-balance neutral transfer from civil to military spending may well reduce output in the short run. Effects on other macroeconomic variables support results from New Keynesian workhorse models, as well as negative consumption effects found in empirical studies using large military spending shocks. I also find evidence of larger multipliers in states of high slack as measured by unemployment considerably above the natural rate, but not for other measures of slack nor for broader measures of economic regimes such as levels of debt-to-GDP, openness to trade and exchange rate regimes.

ORCID iDs

Sousa, Joao P. ORCID logoORCID: https://orcid.org/0009-0006-9842-3870;
CORE (COnnecting REpositories)