The fiscal legacy of U.S. defense spending across booms and downturns

This paper examines the impact of U.S. military spending after World War II on fiscal outcomes across economic expansions and contractions. During economic booms, cuts in military spending were followed by sustained increases in transfers, supported by revenue gains from economic growth. In contrast, during periods of slow or negative growth rising military spending coincided with higher transfers, typically financed through debt. These findings challenge the traditional ‘guns versus butter’ narrative, showing that military and social spending can expand simultaneously in crises, and that macroeconomic conditions, not just voter preferences, play a crucial role in shaping the fiscal legacy of defense spending dynamics.