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What will homeland security cost?

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  • Bart Hobijn

Abstract

The increased spending on security by the public and private sectors in response to September 11 could have important effects on the U.S. economy. Sizable government expenditures, for example, could trigger a rise in the cost of capital and wages and a reduction in investment and employment in the private sector, while large-scale spending by businesses could hamper firm productivity. This article attempts to quantify the likely effects of homeland security expenditures on the economy. It suggests that the total amount of public- and private-sector spending will be relatively small: the annual direct costs of the homeland security efforts are estimated to be $72 billion, or 0.66 percent of GDP in 2003. In the private sector, homeland security expenses are estimated to lower labor productivity levels by at most 1.12 percent. Therefore, the reallocation of resources associated with homeland security is unlikely to have any large and long-lasting effects on the U.S. economy.

Suggested Citation

  • Bart Hobijn, 2002. "What will homeland security cost?," Economic Policy Review, Federal Reserve Bank of New York, issue Nov, pages 21-33.
  • Handle: RePEc:fip:fednep:y:2002:i:nov:p:21-33:n:v.8no.2
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    Citations

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    Cited by:

    1. Friedrich Schneider & Tilman Brück & Daniel Meierrieks, 2010. "The Economics of Terrorism and Counter-Terrorism: A Survey (Part I)," Discussion Papers of DIW Berlin 1049, DIW Berlin, German Institute for Economic Research.
    2. James Harrigan & Philippe Martin, 2002. "Terrorism and the resilience of cities," Economic Policy Review, Federal Reserve Bank of New York, issue Nov, pages 97-116.
    3. Tilman Bruck, 2005. "An Economic Analysis Of Security Policies," Defence and Peace Economics, Taylor & Francis Journals, vol. 16(5), pages 375-389.
    4. Benedict J. Clements & Sanjeev Gupta & Shamit Chakravarti & Rina Bhattacharya, 2002. "Fiscal Consequences of Armed Conflict and Terrorism in Low- and Middle-Income Countries," IMF Working Papers 02/142, International Monetary Fund.
    5. Bruno S. Frey & Simon Luechinger, 2005. "Measuring terrorism," Chapters,in: Law and the State, chapter 6 Edward Elgar Publishing.
    6. Tavares, Jose, 2004. "The open society assesses its enemies: shocks, disasters and terrorist attacks," Journal of Monetary Economics, Elsevier, vol. 51(5), pages 1039-1070, July.
    7. Ito, Harumi & Lee, Darin, 2005. "Assessing the impact of the September 11 terrorist attacks on U.S. airline demand," Journal of Economics and Business, Elsevier, vol. 57(1), pages 75-95.
    8. Christopher J. Neely, 2004. "The Federal Reserve responds to crises: September 11th was not the first," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 27-42.
    9. Carlos Martí Sempere, 2011. "A Survey of the European Security Market," Economics of Security Working Paper Series 43, DIW Berlin, German Institute for Economic Research.
    10. Lakdawalla, Darius & Zanjani, George, 2005. "Insurance, self-protection, and the economics of terrorism," Journal of Public Economics, Elsevier, vol. 89(9-10), pages 1891-1905, September.

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