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Optimal Military Spending in the US: A Time Series Analysis

  • Giorgio d'Agostino

    (University of Perugia and UWE, Bristol)

  • Luca Pieroni


    (University of Perugia and UWE, Bristol)

  • J Paul Dunne


    (Department of Economics, British University in Egypt and UWE, Bristol)

Registered author(s):

    This paper extends previous work on the optimal size of government spend- ing by including nested functional decompositions of military spending into consumption and investment. Post World War II US data are then used to estimate nested non-linear growth models using semiparametric methods. As expected, investment in military and non-military expenditure are both found to be productive expenditures. Moreover there is little evidence to suggest that current military spending is having a negative impact on economic growth in the US, while civilian consumption only tends to have only a weak impact. This does not imply that society will necessarily bene?t from a reallocation of more spending to the military sector, nor that it is the best way to achieve economic growth. It does suggest that the US economy is not necessarily being hindered by its current military burden.

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    File Function: First version, 2009
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    Paper provided by Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol in its series Working Papers with number 0903.

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    Length: 28 pages
    Date of creation: Mar 2009
    Date of revision:
    Handle: RePEc:uwe:wpaper:0903
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    1. Shantayanan Devarajan & Vinaya Swaroop & Heng-fu Zou, 1996. "The composition of public expenditure and economic growth," CEMA Working Papers 77, China Economics and Management Academy, Central University of Finance and Economics.
    2. Luca Pieroni, 2007. "Military Spending and Economic Growth," Working Papers 0708, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
    3. Stefan Mittnik & Thorsten Neumann, 2003. "Time-Series Evidence on the Nonlinearity Hypothesis for Public Spending," Economic Inquiry, Western Economic Association International, vol. 41(4), pages 565-573, October.
    4. Barro, R.J., 1988. "Government Spending In A Simple Model Of Endogenous Growth," RCER Working Papers 130, University of Rochester - Center for Economic Research (RCER).
    5. Jones, Charles I, 1995. "Time Series Tests of Endogenous Growth Models," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 495-525, May.
    6. Ramey, Valerie A. & Shapiro, Matthew D., 1998. "Costly capital reallocation and the effects of government spending," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 48(1), pages 145-194, June.
    7. Shieh, Jhy-yuan & Lai, Ching-chong & Chang, Wen-ya, 2002. "The impact of military burden on long-run growth and welfare," Journal of Development Economics, Elsevier, vol. 68(2), pages 443-454, August.
    8. Michael Gerace, 2002. "US Military Expenditures and Economic Growth: Some Evidence from Spectral Methods," Defence and Peace Economics, Taylor & Francis Journals, vol. 13(1), pages 1-11.
    9. David Aschauer, 1988. "Is public expenditure productive?," Staff Memoranda 88-7, Federal Reserve Bank of Chicago.
    10. J. Paul Dunne & Ron Smith & Dirk Willenbockel, 2005. "Models Of Military Expenditure And Growth: A Critical Review," Defence and Peace Economics, Taylor & Francis Journals, vol. 16(6), pages 449-461.
    11. Kneller, Richard & Bleaney, Michael F. & Gemmell, Norman, 1999. "Fiscal policy and growth: evidence from OECD countries," Journal of Public Economics, Elsevier, vol. 74(2), pages 171-190, November.
    12. J Paul Dunne & Mehmet Uye, 2009. "Military Spending and Development," Working Papers 0902, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
    13. Jes�s Crespo Cuaresma & Gerhard Reitschuler, 2004. "A non-linear defence-growth nexus? evidence from the US economy," Defence and Peace Economics, Taylor & Francis Journals, vol. 15(1), pages 71-82, February.
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