The McKenna rule and U.K. World War I finance

No 2007-03, FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta

Abstract: The United Kingdom employed the McKenna rule to conduct fiscal policy during World War I (WWI) and the interwar period. Named for Reginald McKenna, Chancellor of the Exchequer (1915?16), the McKenna rule committed the United Kingdom to a path of debt retirement, which we show was forward-looking and smoothed in response to shocks to the real economy and tax rates. The McKenna rule was in the tradition of the ?English method? of war finance because the United Kingdom taxed capital to finance WWI. Higher rates of capital taxation also paid for debt retirement during and subsequent to WWI. The United Kingdom was motivated to implement the McKenna rule because of a desire to achieve a balance between fairness and equity. However, the McKenna rule adversely affected the real economy, according to a permanent income model. WWI and interwar U.K. data support the prediction that real activity is lower in response to higher past debt retirement rates.

Date: 2007
New Economics Papers: this item is included in nep-his and nep-pbe
References: View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://www.atlantafed.org/-/media/Documents/resea ... s/wp/2007/wp0703.pdf (application/pdf)

Related works:
Journal Article: The McKenna Rule and UK World War I Finance (2007)
Working Paper: The McKenna Rule and UK World War I Finance (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedawp:2007-03

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta Contact information at EDIRC.
Bibliographic data for series maintained by Rob Sarwark ().