The Effects of Military Expenditures on Economic Growth and Inflation: Evidence from Turkey

Abstract The hypothesis that military spending affects economic growth and other aspects of the economy has been under scrutiny over the last decades. However, the macroeconomic impact of defense outlays is still an open question for researchers and policymakers. Aiming to contribute to the existing debate, this paper combines Keynesian with monetary theory and develops a discrete-time model that allows for potential fiscal-monetary coordination for financing the military sector in order to examine the effects of defense outlays on income and inflation. Τhe theoretical analysis suggests that military budget expansions can only have temporary effects on income, as in the long run, their impact on the economy is solely inflationary. However, the empirical findings associated with the economy of Turkey are not fully consistent with the theoretical conclusions of the specified model.