Working Paper: NBER ID: w30498
Authors: Alan J. Auerbach; Yuriy Gorodnichenko; Daniel Murphy
Abstract: We exploit a panel of city-level data with rich demographic information to estimate the distributional effects of Department of Defense spending and its effects on a range of social outcomes. The income generated by defense spending accrues predominantly to households without a bachelor’s degree. These households as well as Black households tend to disproportionately benefit from this spending. Defense spending also promotes a range of beneficial social outcomes that are often targeted by government programs, including reductions in poverty, divorce rates, disability rates, and mortality rates, as well as increases in homeownership, health insurance rates, and occupational prestige. We compare the effects of defense spending with the effects of general demand shocks and explore reasons for the differential effects of the shocks.
Keywords: Department of Defense spending; social outcomes; distributional effects; economic stimulus; poverty reduction
JEL Codes: E6; H30; H50
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| DoD spending (H56) | reduction in poverty rates (I32) |
| DoD spending (H56) | reduction in poverty rates among households without a bachelor's degree (I24) |
| DoD spending (H56) | reduction in poverty rates among black households (H53) |
| DoD spending (H56) | less than 0.5% increase in overall average earnings (J31) |
| DoD spending (H56) | 0.7% increase in earnings for households without a bachelor's degree (J31) |
| DoD spending (H56) | decrease reliance on government assistance programs (H53) |
| DoD spending (H56) | increase health insurance coverage (I13) |
| DoD spending (H56) | positive effect on occupational prestige for workers without a bachelor's degree (J24) |
| DoD spending (H56) | significant increase in homeownership rates (R21) |
| DoD spending (H56) | increase in marriage rates (J12) |
| DoD spending (H56) | decrease in divorce rates (J12) |
| DoD spending (H56) | reduction in travel times to work (R41) |
| DoD spending (H56) | improvement in mortality rates for individuals over 45 (I14) |
| DoD spending (H56) | negligible effect on crime rates (K14) |
| DoD spending (H56) | stronger social effects compared to general demand shocks (H31) |