Military R&D, Growth and the Optimal Allocation of Governement Spending

Stefano Bosi () and Thierry Laurent ()
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Stefano Bosi: EPEE, Center for Economic Policy Studies, University of Evry

No 06-12, Documents de recherche from Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne

Abstract: The purpose of the model developed in the paper is to provide a simple economic framework to address an economic policy question, namely the optimal size of military R&D investment within total public expenditures. To capture the long-run impact of military R&D on the growth rate of the economy, one develops an endogenous growth model in line with Barro [1990] and Shieh & alii [2002]; the model focuses on the optimal sharing of public resources between civil investments, public consumption, military R&D investment and “standard” military spending. It emphasizes the key role played by public military R&D investments in determining the longrun levels of economic growth and welfare. According to our numerical simulations — based on a very prudential set of assumptions concerning the economic impact of military R&D — a 3.65 billions euros permanent reallocation of public spending from civilian unproductive public consumption towards military R&D investment, would induce a 380 billions euros GDP discounted benefit over a decade. In such a framework, characterized by productive externalities originating in military R&D, the government optimal policy should be to massively invest in military R&D: a global tax rate below 12% would drive to a 5.6% GDP long-run yearly growth rate.

Keywords: endogenous growth; R&D; military expenditures; public spending (search for similar items in EconPapers)
JEL-codes: D58 H23 O31 O32 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2006
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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