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

Marco Lorusso, Luca Pieroni

Research output: Contribution to journalArticle

Abstract

In this paper, we provide evidence that civilian and military government spending have specific characteristics that can affect differently private consumption. 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 1960-1979 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 policy-makers 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; iii) monetary reactions in response to diverse government shocks.
Original languageEnglish
Pages (from-to)442-456
Number of pages15
JournalJournal of Peace Research
Volume54
Issue number3
DOIs
StatePublished - 1 May 2017

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public spending
expenditure
shock
military government
budget deficit
rigidity
finance
persistence
Finance
Impulse response
Rigidity
Specifications
economy
budgets
impulses
specifications
estimates

Keywords

  • Military and civilian spending
  • Structural Vector Autoregressive (SVAR) model
  • Dynamic Stochastic General Equilibrium (DSGE) model

Cite this

Lorusso, Marco; Pieroni, Luca / The effects of military and non-military government expenditures on private consumption.

In: Journal of Peace Research, Vol. 54, No. 3, 01.05.2017, p. 442-456.

Research output: Contribution to journalArticle

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The effects of military and non-military government expenditures on private consumption. / Lorusso, Marco; Pieroni, Luca.

In: Journal of Peace Research, Vol. 54, No. 3, 01.05.2017, p. 442-456.

Research output: Contribution to journalArticle

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