EARLY 1930'S: A UNIQUE PERIOD IN FISCAL EVOLUTION?

Abstract

The early 1930's brought significant institutional and policy changes, which then had a long lasting effect on the country's social and commercial life. New, powerful and highly discretionary instruments became at the disposal of the State which, combined with traditional tariffs, began to be used by it to regulate trade flows. Together with direct government investment in the production of good and services, they became the most important public policy instruments used to determine the development structure of the country in the following decades. Chile also lost its monetary anchor during the Great Depression, making very significant inflationary price level expansions possible. In the case of specific goods, these price expansions then offered an opportunity for State interventions into the relative price structure. Whatever the precise underlying cause for such a policy, from 1932 onwards, government began to manage relative prices, for which the necessary legal framework, including strong enforcement instruments, was also approved in the latter year. At the same time, the above mentioned trade inhibiting instruments began to be used to make price controls viable. In particular, multiple exchange rates and the accompanying import quota system, gave price controls real content. Ongoing inflationary pressures transformed price fixing into a permanent and increasingly significant public activity. The above mentioned government interventions began with the Great Depression, but it is important not to loose sight of the fact that the increasingly discretional role of the State in the economy, especially its executive power, is of older data. For example, also in the 1920's, significant institutional redesign took place. The role of the market and Parliament in resource allocation decreased,