Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/334632 
Year of Publication: 
2025
Series/Report no.: 
CESifo Working Paper No. 12276
Publisher: 
Munich Society for the Promotion of Economic Research - CESifo GmbH, Munich
Abstract: 
Using historical income and wealth data, we show that war reduces inequality: the top-1% income share falls by 20% and the top-1% wealth share by 10%. We measure three key drivers of inequality - capital destruction, taxation, and inflation - in the data and quantify their role with a Heterogeneous Agent New Keynesian (HANK) model. Destruction depresses profits and thus top incomes. Taxation primarily influences wealth dynamics, while inflation has little effect on top shares, but reduces indebtedness among poorer households. We validate our findings using new data on inequality across German towns in World War 2 and cross-country data on profits.
Subjects: 
interstate wars
inequality
income share
wealth share
JEL: 
F40
F50
E50
Document Type: 
Working Paper
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