The economic response of the Israeli government to a rapid influx of immigrants by the founding of the state, 1948–1953: Expansionary fiscal policy and rationing

Abstract

ABSTRACT Israel was founded in 1948, and immediately afterwards, numerous immigrants came to the country. The Israeli government decided to provide provisions to these immigrants, along with trying to develop the country and investing in the military. This fiscal expansion was funded by seigniorage, and the government attempted to restrain inflation by imposing price controls and rationing food and other consumer goods. This policy failed to stop inflation, and there were persistent shortages of many goods in the country, except for bread which was not rationed. There were even shortages of eggs, which were all produced domestically and whose output increased on a per capita basis by more than 250% in comparison to the number of eggs produced prior to the founding of the state. This indicates that the shortages in the stores were due to the rationing. The shortages led to a flourishing black market, and a reduction in consumer welfare. The rationing made a difficult situation worse and the government began to end the rationing in 1952.