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F40
F50
E50
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Geoeconomics
War
Using historical income and wealth data, we show that war reduces inequality: the top-1% in-come 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 find-ings using new data on inequality across German towns in World War 2 and cross-country data on profits.
