The Impact of Military Spending Cutbacks on Economic Activity in an Incentive-Wage Two-Sector Aggregative Economy

Publication Type

Journal Article

Publication Date

4-1996

Abstract

We examine the theoretical outcomes of disarmament on economic activity in a two‐sector model of endogenous equilibrium unemployment rate. Three main shocks are analyzed: Exogenous cutbacks in military spending on the capital good and employment, and a reduction in public sector debt. The first shock is contractionary for equilibrium employment if the capital‐goods producing sector is relatively labour‐intensive but expansionary under the alternative factor intensity assumption. The second shock is contractionary for employment under either relative factor intensity assumption. If Ricardian equivalence fails, a reduction in public sector debt is likely to expand long‐term employment (JEL E24).

Discipline

Economics

Research Areas

Applied Microeconomics

Publication

Defence and Peace Economics

Volume

7

First Page

95

Last Page

114

ISSN

1024-2694

Identifier

10.1080/10430719608404845

Additional URL

https://doi.org/10.1080/10430719608404845

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