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Does Defense Spending Surprise Long-Run Inflation, Economic Growth and Welfare?

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  • Hung-Pin Lin

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    (Department of International Business & Trade, Shu-Te University,Taiwan)

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    Abstract

    This paper sets up an endogenous growth model to examine the effects of an expansion of defense spending share on inflation, economic growth and welfare. It is found that: (i) an increase of defense spending share will lower the inflation rate and stimulate the economic growth. (ii) from the perspective of maximum social welfare, a“large”enough redistribution of the government spending from defense sector to public sector will promote the social welfare. These can be explained why the arms race and disarmament are advocated in recent years.

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    File URL: http://www.accessecon.com/Pubs/EB/2012/Volume32/EB-12-V32-I1-P97.pdf
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    Bibliographic Info

    Article provided by AccessEcon in its journal Economics Bulletin.

    Volume (Year): 32 (2012)
    Issue (Month): 1 ()
    Pages: 1020-1031

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    Handle: RePEc:ebl:ecbull:eb-11-00603

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    Related research

    Keywords: Defense spending; Inflation rate; Economic growth; Social welfare.;

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    1. Robert J. Barro, 1995. "Inflation and Economic Growth," NBER Working Papers 5326, National Bureau of Economic Research, Inc.
    2. Ching-chong Lai & Jhy-yuan Shieh & Wen-Ya Chang, 2002. "Endogenous Growth and Defense Expenditures: A New Explanation of the Benoit Hypothesis," Defence and Peace Economics, Taylor & Francis Journals, vol. 13(3), pages 179-186.
    3. Ploeg, F. van der & Zeeuw, A.J. de, 1987. "Perfect equilibrium in a model of competitive arms accumulation," Research Memorandum 266, Tilburg University, Faculty of Economics and Business Administration.
    4. Sandler,Todd & Hartley,Keith, 1995. "The Economics of Defense," Cambridge Books, Cambridge University Press, number 9780521447287, October.
    5. Mankiw, N Gregory, 1987. "Government Purchases and Real Interest Rates," Journal of Political Economy, University of Chicago Press, vol. 95(2), pages 407-19, April.
    6. Deger, Saadet & Sen, Somnath, 1983. "Military expenditure, spin-off and economic development," Journal of Development Economics, Elsevier, vol. 13(1-2), pages 67-83.
    7. Futagami, Koichi & Morita, Yuichi & Shibata, Akihisa, 1993. " Dynamic Analysis of an Endogenous Growth Model with Public Capital," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(4), pages 607-25, December.
    8. Shieh, Jhy-yuan & Lai, Ching-chong & Chang, Wen-ya, 2002. "The impact of military burden on long-run growth and welfare," Journal of Development Economics, Elsevier, vol. 68(2), pages 443-454, August.
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