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The Offensive Power of Defense News in Europe

Author

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  • Ben Zeev, Nadav
  • Pappa, Evi
  • Scola Gagliardi, Elena

Abstract

We estimate a Bayesian panel SVAR on annual data for 17 European economies over five decades. Defense news shocks are identified by maximizing the forecast error variance of military spending over five years, subject to orthogonality to contemporaneous expenditure. Extending medium-run restrictions to a panel VAR, we show these shocks systematically raise consumption, investment, employment, and output, with multipliers above unity, but also raise income inequality. Gains are primarily supply-driven operating through higher R&D spending and sustained TFP growth. Effects are larger in Europe than in the U.S., especially post-EMU, and more persistent in NATO members and high-debt economies.

Suggested Citation

  • Ben Zeev, Nadav & Pappa, Evi & Scola Gagliardi, Elena, 2025. "The Offensive Power of Defense News in Europe," CEPR Discussion Papers 20637, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:20637
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    File URL: https://cepr.org/publications/DP20637
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    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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