The Role of Federal Government in the United States War Economy during World War II

Role federální vlády ve válečné ekonomice Spojených států amerických během druhé světové války

Zdenka Johnson

E-LOGOS, 2022, vol. 2022, issue 2, 23-47

Abstract: Managing the war economy during World War II presented many fundamental challenges to the U.S. Federal government. Fiscal policy was a key tool for completing this daunting task. This revolutionary time saw the establishment of many new elements in the American economy and fiscal policy; some have not been removed since. The aim of this study is to analyze and critically evaluate major trends in the development of the war economy and fiscal policy in the United States during World War II. The sub-research questions concern the role of the Federal government during structural changes in the economy as well as the importance of government in economic growth in the context of other GNP spending components. In fiscal policy, the structure of the expenditure side of the Federal budget is examined with respect to the dominance of war (defense) spending; the distribution of the tax burden among economic agents and direct and indirect taxes; or the methods of financing increased government spending. Based on the GNP growth decomposition method and time series analysis, we argue that there was a strong crowding-out effect of household consumption and business investment by government spending. Naturally, this conclusion also applies to the results of the structural analysis of GNP. Hence, the regulatory role of the Federal government was quite crucial in many submarkets. In terms of fiscal policy, war spending significantly dominated the expenditure side of the Federal budget. In war-unrelated spending, chapters like trade and transportation and international affairs and finance had the most prominence. On the revenue side of the budget, direct progressive taxes on individuals increased significantly, as did taxes on corporations. The deepening fiscal deficit was financed primarily by higher tax collection and to a lesser extent by debt accumulation and monetization.

Keywords: war economy; Federal government budget; structural analysis; tax quota; indebtedness; crowding-out effect; economic growth decomposition; válečná ekonomika; federální rozpočet; strukturální analýza; daňová kvóta; zadlužení; efekt vytěsňování; dekompozice hospodářského růstu (search for similar items in EconPapers)
Date: 2022
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DOI: 10.18267/j.e-logos.493

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