Military R&D, Growth and the Optimal Allocation of Governement Spending
AbstractThe purpose of the model developed in the paper is to provide a simple economic framework to address an economic policy question, namely the optimal size of military R&D investment within total public expenditures. To capture the long-run impact of military R&D on the growth rate of the economy, one develops an endogenous growth model in line with Barro  and Shieh & alii ; the model focuses on the optimal sharing of public resources between civil investments, public consumption, military R&D investment and “standard” military spending. It emphasizes the key role played by public military R&D investments in determining the longrun levels of economic growth and welfare. According to our numerical simulations — based on a very prudential set of assumptions concerning the economic impact of military R&D — a 3.65 billions euros permanent reallocation of public spending from civilian unproductive public consumption towards military R&D investment, would induce a 380 billions euros GDP discounted benefit over a decade. In such a framework, characterized by productive externalities originating in military R&D, the government optimal policy should be to massively invest in military R&D: a global tax rate below 12% would drive to a 5.6% GDP long-run yearly growth rate.
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Bibliographic InfoPaper provided by Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne in its series Documents de recherche with number 06-12.
Length: 27 pages
Date of creation: 2006
Date of revision:
endogenous growth; R&D; military expenditures; public spending;
Find related papers by JEL classification:
- D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- O31 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
- O32 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Management of Technological Innovation and R&D
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