Introduction from Mercatus Center:
In “Defense Spending and the Economy,” Harvard University professor of economics Robert Barro and Mercatus Center senior research fellow Veronique de Rugy survey existing research on the “multiplier effect” of an extra dollar of government spending on GDP to examine the economic impact of changes in federal defense spending.
The existing studies found that a dollar increase in federal defense spending results in a less-than-a-dollar increase in GDP when the spending increase is deficit financed. Combining this with a tax multiplier that is negative and greater than one, the authors estimate that over five years each $1 in federal defense-spending cuts will increase private spending by roughly $1.30.
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