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


  • 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.

Suggested Citation

  • Mark A. Wynne, 1991. "The long-run effects of a permanent change in defense purchases," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Jan, pages 1-16.
  • Handle: RePEc:fip:fedder:y:1991:i:jan:p:1-16

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    Cited by:

    1. Zsolt Becsi, 1993. "The long (and short) on taxation and expenditure policies," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Sep, pages 51-64.
    2. Peter Ireland & Christopher Otrok, 1992. "Forecasting the effects of reduced defense spending," Economic Review, Federal Reserve Bank of Richmond, issue Nov, pages 3-11.

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    Defense contracts ; Expenditures; Public;


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