Post -WWII redistribution in the US : the role of the boom cycle

This paper explores the impact of wartime military spending on postwar U.S. fiscal policy, with a particular focus on the "ratchet effect" in taxes and transfers. Through econometric analysis, we investigate how changes in defense spending during and after conflicts shape long-term federal transfer and tax policies, emphasizing the asymmetric influence of economic growth cycles on defense budgets. Our findings challenge conventional perspectives, showing that economic booms reinforce the fiscal structures established in wartime, resulting in sustained increases in federal transfers and tax revenues. Conversely, during economic downturns, we observe a "reverse ratchet" effect, where increases in defense spending lead to higher transfers and decreased revenues, as fiscal resources are reallocated to stabilize household incomes.