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This paper examines the hypotheses that the length and the depth of the Great Depression were a result of sticky prices or sticky nominal wages using panel data for industrialized and semi-industrialized countries. The results show that price stickiness, particularly, and wage stickiness were key propagating factors during the first years of the Depression. It is found that prices adjusted slowly to wages, particularly in manufacturing. Manufacturing wages are also found to adjust relatively slowly to innovations in prices, but unemployment exerted strong downward pressure on wage growth.

This chapter is devoted to fiscal policy theory and to how its evolution influenced the policy principles implemented from the end of the World War II to the present. It shows how the theoretical foundations evolved, from the Keynesian theory according to which public expenditure was conceived as an instrument to sustain aggregate demand and achieve full employment, to the present theoretical framework in which, following the intertemporal approach, it has been downgraded to an external shock. The public debt issue is examined with the aim of explaining why sound public finance represents a primary policy objective in the Eurozone.