Optimal Military Spending in the US: A Time Series Analysis

Abstract

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.Economic growth; productive state spending; military spending,semi-parametric estimation