Income Shocks and Housing Spillovers : Evidence from the World War I Veterans' Bonus

This paper documents how a one-time income shock can persistently alter the household wealth distribution through housing market channels. In 1936, the United States government unexpectedly gave World War I veterans a large income transfer. This payment, equivalent to 1936 per capita income, greatly improved recipients' 1940 home values and homeownership rates compared to those of their 1930 neighbors. These home value gaps still existed in 1960, particularly in booming markets. Loan-level data suggest veterans crowded out other borrowers in the 1930s. This income transfer thus lowered individual barriers to housing wealth accumulation while creating negative local spillovers