WWII contract spending and inequality

ABSTRACT

We find that the share of state-level income captured by the top 1% of income earners falls by 1.73pp in response to WWII contract spending. We also find a postwar permanent decline in top 1% income shares of 0.85pp attributable to wartime spending. This is half the average state-level decline in inequality during the war and one-fifth of the average postwar decline in inequality relative to 1940. We take this as evidence that WWII military spending induced permanent labour market changes in manufacturing that reduced inequality relative to its level in 1940.

KEYWORDS:

• WWII
• fiscal policy
• inequality
• labor markets

JEL CLASSIFICATION:

• N42
• J51
• E62

Acknowledgments

We would like to thank Suresh Naidu, Pablo Garofalo and Gabriel Mathy for helpful comments. The data that support the findings of this study are available from the corresponding author, Andrew Bossie, upon request.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Appendix A can be found at: http://andrewbossie.com/working%20papers/WWII_inequality/Apx_A_WWII_Inequality.pdf.