Project Details
Projekt
Creating Expectations
Subject Area
Economic and Social History
Term
from 2019 to 2023
Project identifier
Deutsche Forschungsgemeinschaft (DFG) - Project number 415983633
If the behavior of forward-looking economic agents today is driven by their expectations about tomorrow, can governments influence the economy by creating expectations? More precisely, can governments, by skillfully managing and guiding the public’s perception of present and future policies, boost economic activity and employment in the present without actually spending much? Do words speak louder than deeds after all?We study this question in the context of one of the most consequential macroeconomic success stories of the 20th century that so far has defied the explanations advanced in the literature: the recovery of the German economy from the Great Depression under the Nazis from 1933 onwards. Revisiting the causes of the German recovery in the 1930s, our project asks if the role of fiscal policy as a driver of the recovery has to be fundamentally reassessed once the effects of expectation creation are considered. We start from the idea that fiscal policy is effective from the moment onwards it is expected, and hence well before it is actually implemented. Thus, our central hypothesis is that Nazi communication and propaganda efforts boosted the effectiveness of the fiscal stimulus much beyond its actual size. Fiscal propaganda likely influenced perceptions through three channels. Most importantly, people came to expect a long and sustained public investment effort as the heavy use of propaganda about highway construction and public work programs credibly tied the legitimacy of the new regime to the success of these programs. In addition, in a world of imperfect information, propaganda can also increase the effects of public spending through two additional channels: by making the positive effects of fiscal spending appear bigger than they were, and by spreading the knowledge of the policy across larger parts of the population through the use of mass media. The proposed project consists of three parts. The objective of the first part is to compile a new historical dataset on fiscal propaganda and fiscal spending. To obtain a quantitative measure for fiscal propaganda we digitize and preprocess a range of German national and regional newspapers as well as radio broadcasts. Afterwards, we apply quantitative text analysis techniques in order to extract empirical evidence on the intensity of Nazi fiscal propaganda from these sources. The second project will use the new data on propaganda to study how it affects the transmission of fiscal policy in a Bayesian VAR model. In the third project we take a regional perspective and compute the effect of regional fiscal spending. Using military spending as an instrument for fiscal spending, we estimate the effects of fiscal policy on employment in regions with low (high) fiscal propaganda intensity. This allows us to explore how strong fiscal propaganda affected the multiplier and thus its role for the German recovery from the Great Depression.
DFG Programme
Priority Programmes
