Rusty Guns and Buttery Soldiers: The Effect of Unemployment on Transatlantic Defense Spending

48 Pages Posted: 16 Sep 2015 Last revised: 5 Oct 2017

See all articles by Jordan Becker

Jordan Becker

King's College London; United States Military Academy, Department of Social Science; Vesalius College; Free University of Brussels (VUB)-Vrije Universiteit Brussel, Institute for European Studies, Students

Date Written: September 15, 2015

Abstract

Scholarship on the relationships between key macroeconomic variables and defense investment is divided on both the appropriate level of aggregation for such analysis, and the direction of causality between macroeconomic variables and defense investment. Both NATO and the EU, through the European Defence Agency (EDA) have established formal or informal targets for categories of defense expenditures, indicating the policy importance of disaggregation. I argue that states respond to increasing unemployment not necessarily by changing what they spend on defense, but by allocating more existing defense resources to personnel, which has a direct effect on employment, rather than equipment or other expenditures, which would have only an indirect effect, if any at all. I find evidence in support of this argument by using shocks in the residential real estate markets of the states in question as an instrument for unemployment. I find that when states experience increases in unemployment, they move resources toward personnel and away from other categories of defense expenditures, namely equipment, operations, and infrastructure. Aggregated defense spending data hides the possible use of military expenditures as an economic stabilizer.

Note: The author is solely responsible for the contents of this paper; they do not reflect the positions of any part of the United States Government.

Keywords: Defense Spending, Unemployment, NATO, EU, Instrumental Variable, European Defence Agency, EDA, Burden Sharing

JEL Classification: C13, C33, E22, E24, E61, E62, H41, H56, H57, H61, H62, H63, H77, J68

Suggested Citation

Becker, Jordan, Rusty Guns and Buttery Soldiers: The Effect of Unemployment on Transatlantic Defense Spending (September 15, 2015). Available at SSRN: https://ssrn.com/abstract=2660703 or http://dx.doi.org/10.2139/ssrn.2660703

Jordan Becker (Contact Author)

King's College London ( email )

King's College London Strand
London, WC2R 2LS
United Kingdom

United States Military Academy, Department of Social Science ( email )

600 Thayer Rd
West Point, NY 10996
United States

Vesalius College ( email )

Pleinlaan 2
Brussels, B-1050
Belgium

Free University of Brussels (VUB)-Vrije Universiteit Brussel, Institute for European Studies, Students ( email )

Ixelles
Belgium

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