Military Expenditures, Growth and Welfare: A Simulation of the Macroeoconomic Impact of Military R&D

National audienceThis paper aims at providing a simple economic framework to address a somewhat neglected question of economic policy, namely the optimal share of investments in military R&D in total public spending. In order to capture the long-run impact of tax-financed military R&D on the growth rate, we develop an endogenous growth model in the spirit of Barra [1990]. The model focuses on the optimal sharing of public resources between consumption, civil investment, military R&D and other military expenditures. Taking into account two types of R&D tax-financed military R&D vs private (nonmilitary) R&D allows us to analyze how the government manages the optimal allocation of tax resources between public funding of military R&D on the one side, and the provision of subsidies to private R&D on the other side. The results emphasize the key role played by military R&D in enhancing economic growth and welfare in the long run