The fiscal legacy of U.S. defense spending across booms and downturns

Do considerations that cause military spending increases symmetrically cause spending cuts? Models of military spending that estimate a single effect for major independent variables implicitly assume that this is the case. In reality, the mechanisms that cause military spending increases do not always imply symmetrical cuts, and vice versa. This article examines two considerations widely held to influence military spending: economic growth and international threats. In both cases, there are reasons to suspect asymmetric effects on military spending. While recessions always create pressure for cuts in military spending, which frequently constitutes a substantial share of national budgets, economic growth does not necessarily imply a symmetric need for spending increases. Similarly, while national security policymakers, including the military, are likely to call for spending increases when international threats worsen, they have self-interested reasons to minimize the budgetary implications of declining threats. A cross-national analysis of military spending since World War II shows that economic decline has a larger impact on military spending than economic growth. In regards to international threat, the findings are more complex. There is no evidence that international threat is related to changes in military spending in the short run, and little evidence of a long-run relationship. The threat variables appear to account for cross-sectional variation in military spending but not variation within each state over time. These results suggest military budgets require more time to recover from economic decline than benefit from economic growth as recessions can thus produce long deviations from the equilibrium relationship between the size of the economy and the military budget. This finding in military spending suggests consequences for our understanding of balance of power and power transitions.

Empirical results suggest that lower military spending in the late 1980s - plus further cuts in military spending should global peace be secured - could produce a substantial long-term peace dividend in higher capacity output. Conventional wisdom suggests that reducing military spending may improve a country's economic growth, but empirical studies have produced ambiguous results on this point. Extending a standard growth model, Knight, Loayza, and Villanueva exploit both cross-section and time-series dimensions of available data to get consistent estimates of the growth-retarding effects of military spending. Military spending is growth-retarding because of its adverse impact on capital formation and resource allocation. Model simulation results suggest a substantial long-term peace dividend - in the form of higher capacity output per capita - that may result from (1) markedly lower military spending in most regions in the late 1980s and (2) future cuts in military spending if global peace is secured. This paper - a joint product of the Macroeconomics and Growth Division, Policy Research Department, and the International Monetary Fund - is part of a larger effort to understand the link between policies and growth.

Conventional wisdom suggests that reducing military spending may improve a country's economic growth, but empirical studies have produced ambiguous results on this point. Extending a standard growth model, the authors exploit both cross-section and time-series dimensions of available data to get consistent estimates of the growth-retarding effects of military spending. Military spending is growth-retarding because of its adverse impact on capital formation and resourceallocation. Model simulation results suggest a substantial long-term peace dividend - in the form of higher capacity output per capita - that may result from: 1) markedly lower military spending in most regions in the late 1980s; and 2) future cuts in military spending if global peace is secured.

Conventional wisdom suggests that reducing military spending may improve a country's economic growth, but empirical studies have produced ambiguous results on this point. Extending a standard growth model, the authors exploit both cross-section and time-series dimensions of available data to get consistent estimates of the growth-retarding effects of military spending. Military spending is growth-retarding because of its adverse impact on capital formation and resource allocation. Model simulation results suggest a substantial long-term peace dividend - in the form of higher capacity output per capita - that may result from: 1) markedly lower military spending in most regions in the late 1980s; and 2) future cuts in military spending if global peace is secured.

Correspondence: The Profitability of Primacy

A study of the impact of military expenditures on economic growth and development examines the differences in the results of previous studies which led to contradictory conclusions. The authors find that these differences are due to sample variations, specificational choices, and the different time periods examined. The data indicate that there is no consistent, statistically significant connection between military spending and economic growth. Augmentation of the models suggests that military expenditures neither help nor hurt economic growth to any significant extent. 2 tables.

The decline in military spending that began in the mid‐1980s continued through 1995, and this decline was widespread both geographically and by level of development. Cuts in military spending appear to have potentially important implications for non‐military spending and fiscal adjustment. In contrast to findings for previous periods, military spending has declined more than proportionately in those countries that have reduced total spending. Countries with Fund programs have reduced military spending more sharply than other developing countries, largely reflecting outcomes in the transition economies. Further, military spending appears to have been less resilient in program countries than other developing countries.

This paper provides a contribution to the growing corpus of knowledge and understanding of the interaction between economic growth and defence spending in South Africa by specifying a Keynesian simultaneous equation model and estimating the system for the period 1961 to 1997. The model contains a growth equation, a savings equation, a trade balance equation and a military burden equation and when estimated by single equation and systems estimation methods is relatively well specified. There is evidence of an overall negative effect of military spending on the economy over this period, though the significance of individual coefficients is low. There is certainly no evidence of any positive impact, suggesting that cuts in military spending do present an opportunity for improved macroeconomic performance.

This paper examines U.S. military spending from 2000-2015 in an attempt to determine whether cuts in military spending have decimated the U.S. military, as some political leaders suggest, and whether a large increase in military spending can be justified.

The decline in military spending that began in the mid-1980s continued through 1995, and this decline was widespread both geographically and by level of development. Cuts in military spending appear to have potentially important implications for nonmilitary spending and fiscal adjustment. In contrast to findings for previous periods, military spending has declined more than proportionately in those countries that have reduced total spending. Countries with Fund programs have reduced military spending more sharply than other developing countries, largely reflecting outcomes in the transition economies. Further, military spending appears to have been less resilient in program countries than other developing countries.

The decline in military spending that began in the mid-1980s continued through 1995, and this decline was widespread both geographically and by level of development. Cuts in military spending appear to have potentially important implications for nonmilitary spending and fiscal adjustment. In contrast to findings for previous periods, military spending has declined more than proportionately in those countries that have reduced total spending. Countries with Fund programs have reduced military spending more sharply than other developing countries, largely reflecting outcomes in the transition economies. Further, military spending appears to have been less resilient in program countries than other developing countries.

This article examines the extent to which military spending is associated with poverty in the United States for the period 1959-92. The relationship is complicated by macroeconomic factors such as economic growth and unemployment. Increased military spending is associated with increasing poverty; however, there is an inverse relationship between wartime military spending and poverty and a direct relationship between peacetime military spending and poverty. Also, military personnel spending is inversely correlated with poverty while Operations and Maintenance (O&M), procurement, and Research and Development (R&D) spending are directly correlated with poverty. These findings suggest the antipoverty policy alternatives of increased social welfare spending, defense conversion that is poverty sensitive, or increased spending on military personnel, which is usually only accompanied by war mobilization. The last option is untenable as social policy and the first option is unlikely in the present political climate; therefore, the poor must rely on more "efficiently targeted" conversion initiatives.

Although conventional wisdom suggests that reducing military spending may improve a country’s economic growth performance, empirical studies have produced ambiguous results. This paper extends a standard growth model and estimates it using techniques that exploit both cross-section and time-series dimensions of available data to obtain consistent estimates of the growth-retarding effects of military spending via its adverse impact on capital formation and resource allocation. Model simulations suggest that a substantial long-run “Peace Dividend”--in the form of higher capacity output--may result from: (i) markedly lower military expenditure levels achieved in most regions during the late 1980s; and (ii) further military spending cuts that would be possible in the future if a global peace could be secured.

Military expenditures in Iraq constitute a large proportion of public expenditures and are considered one of the factors of the financial deficit. However, they did not contribute positively to economic growth, which caused the misallocation of economic resources and the failure to exploit them in an efficient manner. The basic hypothesis of the study is that there is an inverse relationship between military expenditures and the economic growth in Iraq, and in order to achieve the aim of the study and verify its hypothesis the standard method of practical aspect using the model of ARDL is adopted, taking military expenditures, investment expenditures, the war of ISIS as independent variables, and economic growth as a dependent variable. The study has reached several important conclusions, most notably is the existence of a reverse relationship between military expenditures and economic growth as an increase in military expenditures by 1 percent leads to a reduction in GDP by (- 0.13- percent). In light of this, several recommendations have been made. The most important of which is the need to reduce military operational expenditures by reducing military forces, especially informal forces (military militias) as well as reducing corruption in the military sector, which drains large amounts of government budget.

This paper examines a number of hypotheses about the determination of interest rates for the United States. In particular, we are most interested in the relative interest rate effects of changes in military and non‐military spending. We find that increases in military spending cause a significantly larger increase in interest rates than do increases in non‐military spending. These results are insensitive to alternative measures of the data, specifications of the interest rate equations and estimation procedures. Cuts in military spending can reduce the level of total government spending or can be transferred to other programs. Our results then suggest that the crowding out of private expenditures can be reduced when government shifts resources from military to non‐military spending.