Defense Spending in a Neo-Ricardian World

This paper shows that Ricardian equivalence no longer holds once we recognize that government acts as an intermediary between generations in the provision of national defence. Consequently, the level of public debt is positively related to defence spending since this component of government expendit...

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Bibliographic Details
Published in:Economica (London) 1998-05, Vol.65 (258), p.193-210
Main Author: Seiglie, Carlos
Format: Article
Language:English
Subjects:
Bequests
Debt financing
Defence policy
Defense spending
Economic growth
Economic models
Economic theory
Economics
Expenditures
Federal budget deficit
Government spending
Military expenditure
Military spending
National debt
National security
Propensity to save
Public debt
Public expenditure
Savings
Savings rates
Statistical analysis
Studies
Taxation
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Summary:This paper shows that Ricardian equivalence no longer holds once we recognize that government acts as an intermediary between generations in the provision of national defence. Consequently, the level of public debt is positively related to defence spending since this component of government expenditures insures the transferability of bequests, as well as protecting savings. It is shown that defence spending has an adverse effect on both national saving and the saving rate that has not been considered in the economic growth literature. More generally, the paper emphasizes that in developing a positive theory of taxation, the composition of government spending plays an integral role.
ISSN:0013-0427
1468-0335
DOI:10.1111/1468-0335.00123