- The political economy of redistribution in the U.S. in the aftermath of World War II and the delayed impacts of the Great Depression - Evidence and theory
- CEPR Discussion Paper
- Number of pages
- Centre for Economic Policy Research
- Document type
- Faculty of Economics and Business (FEB)
- Amsterdam School of Economics Research Institute (ASE-RI)
The paper presents evidence of an upward ratchet in transfers and taxes in the U.S. around World-War II. This finding is explained within a political-economy framework involving an executive who sets defense spending and the median voter in the population who interacts with a (richer) agenda setter in Congress in setting redistribution. While the setter managed to cap redistribution in the pre-war period, the War itself pushed up the status-quo tax burden, raising the bargaining power of the median voter as defense spending receded. This raised the equilibrium level of redistribution. The higher share of post-War transfers may thus be interpreted as a delayed fulfilment of a, not fully satisfied, popular demand for redistribution inherited from the Great Depression.
Keyword(s): World-War II , ratchets , transfers , taxes , redistribution , agenda setter
JEL(s): E62 , E65 , N11 , N12
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