Military spending, financing, and fiscal sustainability: the universal welfare state under pressure?

Mikael Randrup Byrialsen

Journal of Post Keynesian Economics, 2026, vol. 49, issue 1, 85-127

Abstract: This paper investigates the effects of increased defence expenditures and assesses fiscal sustainability under different financing regimes. To conduct the analysis, we develop an empirical Stock-Flow-Consistent (SFC) model for the Danish economy to simulate various policy-relevant scenarios. The results suggest that an unfinanced policy increases economic activity, employment, wages, and prices but also negatively affects the public wealth-to-income ratio. However, given the solid financial position of the Danish public sector, only a very large unfinanced increase in military spending would lead to an unsustainable trajectory for public finances in the medium term.

Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:mes:postke:v:49:y:2026:i:1:p:85-127

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DOI: 10.1080/01603477.2025.2579262

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