The economic effects of rearmament: evidence from Nazi Germany

Using novel archival data on the German Luftwaffe, I estimate the causal effect of military spending on unemployment in Nazi Germany between 1932 and 1936. Exploiting cross-district variation of supplier locations, I estimate the impact of military procurement on local labor market outcomes. I find that the average supplier location experienced a decline in unemployment per capita of approximately 6 percentage

points. A back-of-the-envelope calculation suggests that total military spending represents around 32% of the observed aggregate fall in unemployment. I also find evidence of significant spillovers, indicating that my results likely underestimate the true effect of military spending.