Wars, Redistribution and Civilian Federal Expenditures in the US over the Twentieth Century

Alex Cukierman, Roel Beetsma and Massimo Giuliodori ()

No 5356, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We provide empirical evidence on two, major war-related, regularities of U.S. fiscal policy. First, while during and around World War I there is a positive correlation between defence spending and civil non-defense spending, this correlation becomes negative during World War II. This may be explained by a combination of complementarities between defence and civilian spending that decrease with the size of government in conjunction with marginal tax distortions that increase with government?s size. Second, during and around World War II there are, war-related, ratchets in transfers, veteran spending, taxes and revenues in the following sense. Invariably, the share of taxes and revenues in GDP goes up, and the share of transfers goes down, when the share of defence expenditures goes up. But taxes go down less and transfers go up more per unit change in defence expenditures when those expenditures go down at the war?s conclusion than the amounts by which taxes go up and transfers go down during the buildup in defence expenditures at the beginning of the war effort. There is no evidence of such ratchets during and around World War I. Two, not necessarily mutually exclusive, explanations for these findings are: 1. The substantially higher franchise during World War II interacted with the crisis induced by the war to cause a permanent expansion of the welfare state. 2. The Great Depression permanently changed the norms of social justice and the interaction of this change with the experience of the War led to a more generous welfare state.

Keywords: World war i and ii; Ratchet; Defence spending; Civilian spending transfers; Taxes; Revenues; Franchise (search for similar items in EconPapers)
JEL-codes: E62 E65 N11 N12 (search for similar items in EconPapers)
Date: 2005-11
New Economics Papers: this item is included in nep-mac
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://cepr.org/publications/DP5356 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:5356

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP5356

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().