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ID:
172143
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Summary/Abstract |
Military spending associated with wars has been a major cause of government deficits and debt financing. This paper looks at the association between debt and defence spending in the UK over the last three centuries. The paper reviews the history, discusses the theory and provides some estimates of the effect of variations in military expenditure on debt. The association tends to be quite close and the effect of the change in the share of military spending in GDP on the debt–GDP ratio is quite stable.
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2 |
ID:
119265
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Publication |
2013.
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Summary/Abstract |
The literature in defence economics has tended to focus on the relationship between defence spending and economic growth. Studies examining the linkage between defence spending and government debt have been relatively rare. Given the recent Global Financial Crisis, originating in the developed economies, and the changed international security picture since 9/11, it is timely to reconsider the defence-debt nexus in the rich economies. This study pays particular attention to developing an empirical strategy which is both soundly based on economic theory concerning the evolution of public debt and which uses econometric methods that are welladapted to the dynamic aspects of the relationship. From the standpoint of economic theory, if a government seeks to minimize the distortionary costs of taxation, then taxation will follow a random walk. Unexpected shocks (war and recession) will cause debt. Other idiosyncratic national-level political considerations that affect the evolution of debt can be factored out by the use of a dynamic panel estimation method. Employing the Arellano-Bond dynamic panel model to the data available from members of the Organization for Economic Co-operation and Development and North Atlantic Treaty Organization over the periods 1988-2009 and 1999-2009, this study finds that the defence burden is a statistically significant and economically important determinant of public debt.
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3 |
ID:
182527
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Summary/Abstract |
The present article analyzes the debt–economic growth nexus in African countries while controlling for the impact of good governance indicators. In contrast to a long tradition of scholarship that has consistently suggested that government debt has a detrimental impact on economic growth in sub-Saharan Africa, recent studies have actually shown that government debt, when coupled with improvements in the quality of government, is actually a driver of economic growth. By analyzing an original dataset that covers the 2002–15 period and additional debt–economic growth data going up to the year 2020, we are able to suggest three conclusions. First, in the absence of debt, good governance matters in improving economic growth. Second, some dimensions of governance are better predictors of economic performance than others—as the “good enough governance” literature has in recent years suggested. Third, under no circumstances is debt government growth beneficial for the economic performance of African countries. Building on this evidence, we suggest that the COVID-19 pandemic—which has already slowed down African economies and increased their debt exposure—may prevent African countries from making greater progress along the developmental path.
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