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
Roel M. W. J. Beetsma
University of Amsterdam - Research Institute in Economics & Econometrics (RESAM); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Tinbergen Institute - Tinbergen Institute Amsterdam (TIA); Netspar
Tel Aviv University - Eitan Berglas School of Economics; Interdisciplinary Center (IDC) Herzliyah; Centre for Economic Policy Research (CEPR)
University of Amsterdam - Faculty of Economics & Econometrics (FEE); Tinbergen Institute - Tinbergen Institute Amsterdam (TIA)
CEPR Discussion Paper No. DP7501
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.
Number of Pages in PDF File: 47
Keywords: agenda setter, ratchets, redistribution, taxes, transfers, World-War II
JEL Classification: E62, E65, N11, N12
Date posted: November 17, 2009
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