Aggregate and Distributional Implications of a Military Buildup

Mathieu Boullot, Christophe Cahn, Edouard Challe and Julien Matheron

Working papers from Banque de France

Abstract: We study the aggregate and distributional implications of a permanent increase in government spending of the magnitude implied by the 2025 change in NATO “core defence” spending target. Our framework of analysis is a calibrated Overlapping-Generations model with Heterogeneous Agents and a rich fiscal side that includes fully specified tax-and-transfer and pay-as-you-go social-security systems. We examine how alternative fiscal adjustments to the shock shape macroeconomic outcomes, aggregating them up from the distributions of individual labour-supply and consumption responses. We highlight the presence of a tradeoff, when choosing among fiscal adjustments, between mitigating aggregate crowding-out of private consumption versus reducing consumption inequality.

Keywords: Overlapping Generations; Heterogeneous Agents; Government Spending; Inequality (search for similar items in EconPapers)
JEL-codes: C62 D15 J11 (search for similar items in EconPapers)
Pages: 79 pages
Date: 2026
New Economics Papers: this item is included in nep-dge
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:1039

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