The comparison of the impact of military and non-military government spending on GDP and consumption in Poland

Abstract

Purpose – The purpose of the article is to compare the macroeconomic effects of military and non-military government spending on the Polish economy, which is particularly relevant in the context of the rapid rise in military spending after the outbreak of the war in Ukraine. Research method – The research is based on a new-Keynesian dynamic stochastic general equilibrium model estimated for the Polish economy. The model developed for the study takes into account differences between 3 types of government spending – military spending, non-military current spending and non-military investment. Results – On the one hand, the empirical results show that in the short and medium term, increasing military spending is a more effective method of stimulating GDP than rising non-military spending. On the other hand, the impulse response functions indicate that increasing non-military spending is a better tool for enhancing effective consumption. Originality / value / implications / recommendations – This is the first research exploring the macroeconomic effects of military spending in a CEE country, which is based on stochastic general equilibrium model accounting for heterogeneity of government spending. Assessing these effects at a time of unprecedented growth in military spending in Poland is an important added value of the study. The main implication of the research is to recommend increasing military spending to boost GDP, while rising non-military spending to stimulate effective consumption.