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Aggregate and Distributional Implications of a Military Buildup

Author

Listed:
  • Mathieu Boullot
  • Christophe Cahn
  • Edouard Challe
  • Julien Matheron

Abstract

We study the aggregate and distributional implications of a permanent increase in government spending of the magnitude implied by the 2025 change in NATO “core defence” spending target. Our framework of analysis is a calibrated Overlapping-Generations model with Heterogeneous Agents and a rich fiscal side that includes fully specified tax-and-transfer and pay-as-you-go social-security systems. We examine how alternative fiscal adjustments to the shock shape macroeconomic outcomes, aggregating them up from the distributions of individual labour-supply and consumption responses. We highlight the presence of a tradeoff, when choosing among fiscal adjustments, between mitigating aggregate crowding-out of private consumption versus reducing consumption inequality.

Suggested Citation

  • Mathieu Boullot & Christophe Cahn & Edouard Challe & Julien Matheron, 2026. "Aggregate and Distributional Implications of a Military Buildup," Working papers 1039, Banque de France.
    • Handle: RePEc:bfr:banfra:1039
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    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts

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