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The Role of Federal Government in the United States War Economy during World War II
[Role federální vlády ve válečné ekonomice Spojených států amerických během druhé světové války]

Author

Listed:
  • Zdenka Johnson

Abstract

Managing the war economy during World War II presented many fundamental challenges to the U.S. Federal government. Fiscal policy was a key tool for completing this daunting task. This revolutionary time saw the establishment of many new elements in the American economy and fiscal policy; some have not been removed since. The aim of this study is to analyze and critically evaluate major trends in the development of the war economy and fiscal policy in the United States during World War II. The sub-research questions concern the role of the Federal government during structural changes in the economy as well as the importance of government in economic growth in the context of other GNP spending components. In fiscal policy, the structure of the expenditure side of the Federal budget is examined with respect to the dominance of war (defense) spending; the distribution of the tax burden among economic agents and direct and indirect taxes; or the methods of financing increased government spending. Based on the GNP growth decomposition method and time series analysis, we argue that there was a strong crowding-out effect of household consumption and business investment by government spending. Naturally, this conclusion also applies to the results of the structural analysis of GNP. Hence, the regulatory role of the Federal government was quite crucial in many submarkets. In terms of fiscal policy, war spending significantly dominated the expenditure side of the Federal budget. In war-unrelated spending, chapters like trade and transportation and international affairs and finance had the most prominence. On the revenue side of the budget, direct progressive taxes on individuals increased significantly, as did taxes on corporations. The deepening fiscal deficit was financed primarily by higher tax collection and to a lesser extent by debt accumulation and monetization.

Suggested Citation

  • Zdenka Johnson, 2022. "The Role of Federal Government in the United States War Economy during World War II [Role federální vlády ve válečné ekonomice Spojených států amerických během druhé světové války]," E-LOGOS, Prague University of Economics and Business, vol. 2022(2), pages 23-47.
    • Handle: RePEc:prg:jnlelg:v:2022:y:2022:i:2:id:493:p:23-47
    DOI: 10.18267/j.e-logos.493
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    References listed on IDEAS

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    1. Higgs, Robert, 1992. "Wartime Prosperity? A Reassessment of the U.S. Economy in the 1940s," The Journal of Economic History, Cambridge University Press, vol. 52(1), pages 41-60, March.
    2. Vernon, J. R., 1994. "World War II Fiscal Policies and the End of the Great Depression," The Journal of Economic History, Cambridge University Press, vol. 54(4), pages 850-868, December.
    3. Goldin, Claudia D, 1991. "The Role of World War II in the Rise of Women's Employment," American Economic Review, American Economic Association, vol. 81(4), pages 741-756, September.
    4. Goldin, Claudia D., 1991. "The Role of World War II in the Rise of Women's Employment," Scholarly Articles 30703972, Harvard University Department of Economics.
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