CFS Online Lecture

– in cooperation with the  Institute for Banking and Financial History and the Leibniz Institute for Financial Research SAFE

European governments announced to strongly increase their defense spending over the next decade, but how can this military buildup be financed? This paper looks back to history to understand how governments in similar situations have responded. We collect a new “Global Budgets Database” spanning 150 years and 22 large countries. The data traces government expenditures not just on the military but on social and other types of spending as well. We use this novel data to identify “military booms,” defined as strong increases in military spending and then study their financing. We focus on three main financing options for more “guns”: (i) cuts in social spending (less “butter”), (ii) higher taxes, and (iii) more debt. We find that cuts in social spending are the exception rather than the rule. “Guns” have almost never been financed by cutting “butter”. Instead, most military buildups were financed via budget deficits and debt accumulation, in line with theory. Also taxes play an important role, especially during peacetime military buildups.

The authors of the Paper are: Jonathan Federle, Johannes Marzipan, Christoph Trebesch (all Kiel Institute)

Registration will be possible closer to the date.