Gillian Brunet: Stimulus on the Home Front: The State-Level Effects of WWII Spending: "WWII is viewed as the quintessential example of fiscal stimulus and exerts an outsized influence on fiscal multiplier estimates, but the wartime economy was highly unusual...
...I use newly-digitized contract data to construct a state-level panel on U.S. spending in WWII. I estimate a relative fiscal multiplier of 0.25, implying an aggregate multiplier of roughly 0.3. Conversion from civilian manufacturing to war production reduced the initial shock to eco-nomic activity because war production directly displaced civilian manufacturing. Saving andtaxes account for 75% of the income generated by war spending, implying that the add-on effects from increased consumption were minimal...
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