Kam Hon Chu Abstract
Research Proposal for J.R. Smallwood Foundation Research Grant, 2017
A cliometric analysis of
the fiscal deficits and debt dynamics of Newfoundland
during the 1920-30s
Summary of Research
The proposed research project is a cliometric study – the application of economic modelling
and econometrics to re-examine the dynamics of the mounting fiscal deficits and public debt crisis
in Newfoundland during the 1920-30s. An economic model is first specified to characterize the
evolution of debt-to-GDP ratio over time in terms of the primary deficit, interest payments on
outstanding debt and growth in real GDP. Historical statistics are then collected to estimate the
parameters of the model. The empirical results are expected to address the following key questions:
(1). Were the persistent fiscal deficits of the Newfoundland government under the period of study
cyclical or structural?
(2). Were the persistent fiscal deficits a consequence of primary deficits? And
(3). Was the debt-to-GDP ratio of Newfoundland stable or explosive during the period under study?
The empirical findings and answers to these questions are expected to enable us to determine
whether the Newfoundland government was really bankrupt because of fundamentally financial and
political crises or it simply confronted a short-term liquidity problem following the Great
Depression. This should clarify and also shed light on the controversies about the debt crisis and the
Amulree Report of 1933. In sum, this proposed study contributes to the existing literature on
Newfoundland Studies. More importantly, there are lessons to be learned from this historical study
as the findings should have important fiscal policy implications for not only the Newfoundland and
Labrador government today but also other small open economies that are plagued by the risk of debt
crises.