Defense planning and fiscal strategy

Peter Berck, Jonathan Lipow and Yakir Plessner

Applied Economics Letters, 2010, vol. 17, issue 11, 1063-1065

Abstract: In this article, we consider the optimal fiscal strategy of a government interested in maximizing expected social welfare in the face of a potential future security threat. While the common wisdom is that countries facing security threats should seek to bolster their fiscal position in order to 'save for a rainy day', we find that the optimization of expected social welfare may require governments to run 'precautionary' fiscal deficits.

Date: 2010
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DOI: 10.1080/00036840902817557

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