Guns vs Butter? How States Finance Wars and the Military – Johannes Marzian

Speaker

Johannes Marzian (Kiel Institute)

Abstract

Geopolitical risks have grown substantially over the past decade, resulting in calls for much more military spending by NATO governments. Policymakers in Western democracies, however, appear to have little fiscal capacity to respond. How can military buildups and rearmament be financed? In this paper we look back at 150 years of history to shed light on this question. We make four contributions. First, we put together a new, comprehensive database of public expenditures in 22 large countries 1870-2022, which covers not just military but also social and other types of spending. Second, we use this novel data to identify “military booms,” defined as strong increases in military spending. Third, we study how military booms were financed, focusing on three main options: (i) cuts in social spending (less “butter”), (ii) higher taxes, and (iii) more debt. Fourth, we study the response of economic variables to military booms. We find little evidence for a “guns vs butter” trade-off in the data. The large majority of military booms in the sample were instead financed by growing budget deficits and increasing tax revenues. Social spending often increased rather than decreased in periods of military buildups and wars. The response of economic variables is particularly strong during war booms. 

Authors

Jonathan Federle (Kiel Institute) – Johannes Marzian (Kiel Institute) – Christoph Trebesch (Kiel Institute)

Room

Media Room (A-211)