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The long-run effects of a permanent change in defense purchases

Listed author(s):
  • Mark A. Wynne

In this article, Mark A. Wynne explores how a permanent reduction in defense spending might affect the average U.S. household. He finds that, in the long run, Americans will reap a peace dividend. For example, if Congress reduces annual defense spending from 6 percent of gross national product to 3 percent, in the long run private consumption as a share of GNP could rise 3 percentage points. In the short run, some businesses and households will sustain losses. Over time, however, the economy will reabsorb the resources freed by lower defense-related production and will expand production for private consumption. ; Underlying Wynne's analysis is the assumption that Congress will use the funds saved on defense spending either to lower taxes or to reduce the federal deficit. Wynne develops a simple empirical model to explain the relationship between the share of GNP spent on private consumption and the share spent on defense over the past one hundred years.

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Article provided by Federal Reserve Bank of Dallas in its journal Economic and Financial Policy Review.

Volume (Year): (1991)
Issue (Month): Jan ()
Pages: 1-16

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Handle: RePEc:fip:fedder:y:1991:i:jan:p:1-16
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