Abstract
In the defense policy literature, it is widely believed that there is a pronounced bias towards the procurement of a less than optimal number of excessively sophisticated weapons. In this paper, we consider the possibility that this perceived bias is the result of the timing and informational structure of defense procurement decisions, and the interrelationship of this structure with overall fiscal policy. Specifically, this paper presents a model that suggests that tax smoothing considerations of the type first articulated in Barro (1979) could lead social welfare maximizing decision makers to choose a higher level of weapon quality than would be optimal if government revenue could be raised without resort to distortionary taxation. *The authors would like to thank Alan Viard of the Dallas Federal Reserve Bank, participants in the 2005 Ne'eman Institute Seminar in the Economics of National Security at Tel Aviv University, and two anonymous referees for their comments and insights.
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