Beetsma, R., Cukierman, A., and Giuliodori, M. (2016a). The political economy of redistribution in the U.S. in the aftermath of World War II - evidence and theory. American Economic Journal. Economic Policy, 8(4):1-40. Copyright.
JournalAmerican Economic Journal: Economic Policy
We present legislative, historical and statistical evidence of a substantial upward ratchet in transfers and taxes in the US due to World War II. This finding is explained within a political-economy framework with defense spending responding to a war threat and a median voter in the population who interacts with a (richer) agenda setter in Congress in setting redistribution. While the setter managed to cap redistribution before the War, the War itself raised the status quo tax burden and improved tax collection technology, strengthening the bargaining power of the median voter as defense spending receded. This permanently raised the level of redistribution.