Macroeconomic impacts of higher defence spending: a model-based assessment

Nikola Bokan, Pascal Jacquinot, Magdalena Lalik, Georg Müller, Romanos Priftis and Rodolfo Rigato

Economic Bulletin Articles, 2025, vol. 6

Abstract: This article uses a suite of macroeconomic models to assess the economic impacts of an increase in euro area defence spending. Multipliers of government purchases average just below 1, and there is notable model uncertainty. Pressures on HICP (Harmonised Index of Consumer Prices) inflation increase only gradually over time. An analysis of the transmission channels suggests that private sector expectations of higher future interest rates and taxes may substantially reduce fiscal multipliers. As regards the distributional consequences of increased spending, we find mild cross-country spillovers and markedly different effects on consumption across the wealth distribution. JEL Classification: E32, E62

Keywords: defence spending; Fiscal multipliers; Fiscal policy (search for similar items in EconPapers)
Date: 2025-09
Note: 2613775
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