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

Author

Listed:
  • Hung-Pin Lin

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

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.

Suggested Citation

  • Hung-Pin Lin, 2012. "Does Defense Spending Surprise Long-Run Inflation, Economic Growth and Welfare?," Economics Bulletin, AccessEcon, vol. 32(1), pages 1020-1031.
  • Handle: RePEc:ebl:ecbull:eb-11-00603
    as

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    File URL: http://www.accessecon.com/Pubs/EB/2012/Volume32/EB-12-V32-I1-P97.pdf
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    References listed on IDEAS

    as
    1. van der Ploeg, F & de Zeeuw, A J, 1990. "Perfect Equilibrium in a Model of Competitive Arms Accumulation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(1), pages 131-146, February.
    2. Robert J. Barro, 2013. "Inflation and Economic Growth," Annals of Economics and Finance, Society for AEF, vol. 14(1), pages 121-144, May.
    3. Mankiw, N Gregory, 1987. "Government Purchases and Real Interest Rates," Journal of Political Economy, University of Chicago Press, vol. 95(2), pages 407-419, April.
    4. 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.
    5. 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 607-625, December.
    6. Sandler,Todd & Hartley,Keith, 1995. "The Economics of Defense," Cambridge Books, Cambridge University Press, number 9780521447287.
    7. Deger, Saadet & Sen, Somnath, 1983. "Military expenditure, spin-off and economic development," Journal of Development Economics, Elsevier, vol. 13(1-2), pages 67-83.
    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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    More about this item

    Keywords

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

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling

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