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The effects of military and non-military government expenditures on private consumption

Author

Listed:
  • Marco Lorusso

    (CEERP, Heriot-Watt University)

  • Luca Pieroni

    (Department of Political Science, University of Perugia)

Abstract
In this article, we provide evidence that civilian and military government spending have specific characteristics that can affect private consumption differently. Our vector autoregressive (VAR) estimates for the US economy for the period 1960–2013 show that civilian expenditure induces a positive and significant response on private consumption, whereas military spending has a negative impact. We also analyze the effects of these public spending components for the subsamples 1960–79 and 1983–2013, respectively. Our results show that the main transmission channels of both civilian and military expenditures have changed over time. We adopt a new Keynesian approach and develop a dynamic stochastic general equilibrium (DSGE) model in order to simulate the empirical evidence. Both the larger persistence of shocks in military spending and the different financing mechanisms, which account for the propensity of policymakers to use budget deficits to finance wars, mimic the differences in the empirical responses of private consumption. Simulated impulse response functions of alternative specification models prove the robustness of our analysis. In particular, we assess the impact of civilian and military shocks in the presence of different (i) shares of heterogeneous households, (ii) price rigidities, and (iii) monetary reactions in response to different government shocks.

Suggested Citation

  • Marco Lorusso & Luca Pieroni, 2017. "The effects of military and non-military government expenditures on private consumption," Journal of Peace Research, Peace Research Institute Oslo, vol. 54(3), pages 442-456, May.
    • Handle: RePEc:sae:joupea:v:54:y:2017:i:3:p:442-456
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    Citations

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    Cited by:

    1. Oukhallou, Youssef, 2019. "Military Expenditure and Economic Development," MPRA Paper 98352, University Library of Munich, Germany.
    2. Olejnik, Łukasz Wiktor, 2023. "Short-run multiplier effects of military expenditures in NATO's Eastern Flank countries in 1999–2021," Journal of Comparative Economics, Elsevier, vol. 51(4), pages 1344-1355.
    3. Stylianos Asimakopoulos & Marco Lorusso & Luca Pieroni, 2021. "Can public spending boost private consumption?," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 54(3), pages 1275-1313, November.
    4. Marco Lorusso & Luca Pieroni, 2019. "Disentangling Civilian and Military Spending Shocks: A Bayesian DSGE Approach for the US Economy," JRFM, MDPI, vol. 12(3), pages 1-41, September.
    5. Shakoor Ahmed & Khorshed Alam & Afzalur Rashid & Jeff Gow, 2020. "Militarisation, Energy Consumption, CO2 Emissions and Economic Growth in Myanmar," Defence and Peace Economics, Taylor & Francis Journals, vol. 31(6), pages 615-641, August.
    6. Giorgio d’Agostino & J. Paul Dunne & Luca Pieroni, 2017. "Does Military Spending Matter for Long-run Growth?," Defence and Peace Economics, Taylor & Francis Journals, vol. 28(4), pages 429-436, July.
    7. Lukasz Wiktor Olejnik, 2023. "Economic growth and military expenditure in the countries on NATOʼs Eastern flank in 1999–2021," Bank of Estonia Working Papers wp2023-2, Bank of Estonia, revised 09 May 2023.

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