Aggregate and Distributional Implications of a Military Buildup

Mathieu Boullot, Christophe Cahn, Edouard Challe and Julien Matheron

No 21270, CEPR Discussion Papers from Centre for Economic Policy Research

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 fromthe 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: C68 D15 J11 (search for similar items in EconPapers)
Date: 2026-03
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Working Paper: Aggregate and Distributional Implications of a Military Buildup (2026)
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