IMF Staff Papers - December 2001 - Military Spending, the Peace Dividend, and Fiscal Adjustment By Davoodi, Benedict Clements, Jerald Schiff, and Peter Debaere

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last updated: December 2001
Volume 48, Number 2

Military Spending, the Peace Dividend, and Fiscal Adjustment
By Davoodi, Benedict Clements, Jerald Schiff, and Peter Debaere

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Abstract:This paper decomposes the sources of the peace dividend into global, regional, and country-specific factors, and analyzes their relative importance. It finds that the easing of international and regional tensions and the existence of IMF-supported adjustment programs are systematically related to lower military spending and a higher share of nonmilitary spending in total government outlays. The easing of international tensions and of regional tensions since the end of the Cold War and the existence of IMF-supported adjustment programs account for 66 percent, 26 percent, and 11 percent of the decline in military spending, respectively. Furthermore, fiscal adjustment has implied a larger cut in military spending of countries with IMF-supported programs. [JEL H10, H50, H56]