Short-run multiplier effects of military expenditures in NATO's Eastern Flank countries in 1999–2021

Abstract

Using a newly created dataset of detailed and disaggregated military expenditures, this paper studies the impact of military expenditures on GDP changes in nine Central and Eastern European countries in 1999–2021. The cumulative fiscal multipliers of military expenditures estimated using the Local Projections method take values 0.6 on impact, 1.5–1.6 in the second and in the third year after shock and gradually decrease in subsequent years. They are higher during recession periods. Personnel military expenditures have relatively the highest multipliers among disaggregated military expenditures. Other military expenditures have positive, but lower than unity multipliers, while the multipliers of military equipment purchases are insignificant and close to zero. Cumulative multipliers of military expenditures during military build-up after the outbreak of the war in Donbas were lower than cumulative multipliers in the whole sample.