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Arms or butter: The economic effect of an increase in military expenditure

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  • Yang, Heewon
  • Hong, Chanyoung
  • Jung, Sungmoon
  • Lee, Jeong-Dong

Abstract

This paper analyzes the economic effects of increasing military expenditure, a requirement in the Republic of Korea. The effects of military expenditure are examined with various scenarios concerning financial resources from an endogenous growth perspective. The dynamic Computational General Equilibrium (CGE) model is employed in order to measure the aggregate effect of changes in military expenditure. Raising the indirect tax rate is the best for GDP, but a corporate income tax rate increase is the best for gross output. The differences between short-term and long-term effects are verified by the dynamic change in each indicator.

Suggested Citation

  • Yang, Heewon & Hong, Chanyoung & Jung, Sungmoon & Lee, Jeong-Dong, 2015. "Arms or butter: The economic effect of an increase in military expenditure," Journal of Policy Modeling, Elsevier, vol. 37(4), pages 596-615.
    • Handle: RePEc:eee:jpolmo:v:37:y:2015:i:4:p:596-615
    DOI: 10.1016/j.jpolmod.2015.03.014
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    More about this item

    Keywords

    Economic growth; Military expenditure; CGE model; Republic of Korea;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models

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