Defence Expenditure–Government Debt Nexus in the Context of Sustainability in Selected Small European Union Countries

Abstract

This paper explores the relationship between defence expenditure and government debt in small European Union countries that are members of NATO, such as Luxembourg, Lithuania, Latvia, Estonia, DRenmark, Slovakia, and Slovenia. The investigation used Eurostat data in relation to gross government debt, as well as NATO information regarding defence expenditure as a share of GDP and its distribution by main category for the period between 2005 and 2019. The authors applied descriptive statistics and methods of multivariate statistics: Spearman’s correlation, the ANOVA test, and Life tables. Taking into consideration the tendencies of variables in all examined countries, the results show that the share of defence expenditure in GDP correlates statistically significantly and negatively with government gross debt. Latvia, Slovakia, and Slovenia revealed statistically significant relationships between variables, while Luxembourg, Denmark and Lithuania insignificant. In Estonia, the relationship between variables is strong and positive. Additionally, the investigation shows that, whether for increasing defence expenditure or for stable or decreasing defence expenditure, the trajectories of government debt have no clear interrelation in explored countries. Therefore, the cause of government debt by means of defence expenditure alone can only be partially explained. The insights that were drawn from this study could be applied to government finance management processes, as well as to ensure both national security and the achievement of the Sustainable Development Goals 2030.