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On the relationship between defense and non-defense spending in the U.S. during the world wars
Affiliation:1. University of Amsterdam, Tinbergen Institute, CEPR and CESifo, The Netherlands;2. Tel Aviv University and CEPR, Israel;3. University of Amsterdam, The Netherlands;1. Purdue University, IN, USA;2. University of California, Riverside, CA, USA;3. University of International Business and Economics, Beijing, China;4. Singapore Management University, Singapore;1. Cowles Foundation for Research in Economics, Yale University, New Haven, CT 06511, United States;2. Haas School of Business, University of California, Berkeley, CA 94720, United States;3. Department of Economics, Stanford University, Stanford, CA 94305, United States;1. Department of Economics, Lancaster University Management School, Lancaster, LA1 4YX, UK;2. Department of Economics, Indiana University, Bloomington, IN 47405, USA
Abstract:
We show that U.S. defense and non-defense expenditures were positively correlated during World War I and negatively during World War II. We rationalize this pattern in a model with falling spending complementarities and rising marginal tax distortions as government grows.
Keywords:
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