Optimal military spending in the US: A time series analysis

This paper extends previous work on the optimal size of government spending 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 semi-parametric methods. As expected, investments in military and non-military expenditure are both found to be productive expenditures with respect to the private production. 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 benefit from a reallocation of more spending to the military sector, nor that it is the best way to achieve economic growth.

Research Highlights► This paper extends previous work on the optimal size of government. ► Semi-parametric methods are used to estimate nonlinear growth models in the US. ► Investment in military spending are found to be “productive”. ► This does not imply that society will benefit of a military sector reallocation.