Stimulus on the Home Front: The State-Level Effects of WWII Spending

Abstract

I use newly-digitized contract data on U.S. war production spending over 1940-1945 to analyze the macroeconomic effects of U.S. military spending in World War II. I find personal income multipliers of 0.34 over two years and 0.49 over three years. Personal income multipliers may substantially understate GDP multipliers, perhaps by as much as 50%. Employment estimates imply costs per job-year over the same time horizons of $405,013 and $232,268 in 2015 dollars, suggesting job creation was limited. I also find evidence of negative scale effects: larger positive spending shocks are associated with systematically smaller multiplier estimates.