participants for comments, and especially Steve Broadberry and Tim Hatton. We thank Kit Baum for providing us with his US data. Hautcoeur and Sicsic, "Interest rates and taxes" p. 2 at market interest rates, since changes in and expectations regarding taxation, inflation and exchange rates are reflected in market prices (at least in efficient markets which, we argue, was the case during the period under review). Our main findings are as follows. During the first critical episode from 1924 to

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... 6, the delay in stabilizing the franc may be attributed to a political struggle over a capital levy, which explains most of the increase in the market interest rate from 1924 (when the implied 5-year market rate was 13%) to 1925 (about 16%). Nevertheless, this struggle never threatened to degenerate into hyperinflation, contrary to what has been frequently argued. First, interest rates during the Cartel period were never as high as they should have been had the country been on the verge of hyperinflation. Second, the expected exchange rate of the British pound was declining and well below its current rate even before the nomination of Poincaré as Président du Conseil, so that the apex of the exchange-rate crisis from May to July 1926 appears to be a speculative bubble and not the sign that some other economic stabilization policy was needed. Concerning the following period, we show that the low interest rates in France during the 1928-1931 period reflected expectations of an appreciation of the franc vis-à-vis the pound. After the devaluations of both the pound and the dollar, France followed a deflationary policy in order to maintain the gold standard. If this policy had been expected to succeed, interest rates would have remained low, which was not the case. We examine whether the political struggle between extreme right and left in the years 1933-1936 can explain the rise in interest rates as it did in 1925. We show that expectations of a franc depreciation fully account for the rise in interest rates. This paper is organized as follows: section II presents the main events that interest us and their various interpretations. Section III explains the methodology used in order to construct medium-term interest rates and justifies the hypotheses used. Section IV presents the derived market interest rates. Section V compares the rates of return on public and private bonds in order to confirm the validity of using the interest rates on public bonds in the subsequent sections. Section VI looks at the impact on interest rates of the possible introduction of a new tax. Section VII uses the prices of the Caillaux rentes issued with exchange-rate guarantees to assess exchange-rate expectations. II. The Debates After the First World War, a return to the gold standard was considered in France (and most countries) as the condition for a normal economic situation. But high and varying wartime inflation and the accumulation of internal and external debts by most belligerent countries made stabilization difficult. As a victorious nation, France considered it normal to return to the nineteenth century gold parity, a goal the United Kingdom would reach in 1925. Nevertheless, the cost of reconstruction and compensating for war losses was so high that it required enormous amounts of public spending, Hautcoeur and Sicsic, "Interest rates and taxes" p. 3