tailieunhanh - The Economic Impact of the Iraq War and Higher Military Spending

One way affluent households might respond to a tax increase is by working less, as they see a smaller return on each hour of work. Alternatively, since after-tax income would decline, households might work more to maintain their pre-law- change levels of consumption. The research on this question indicates that labor supply, particularly among men, is unresponsive to tax rates. While most studies do not focus specifically on affluent households, the few that do arrive at a similar conclusion. The one group of workers in affluent households whose labor supply has been found to be responsive to changes in taxes on earnings. | fi cepr CENTER FOR ECONOMIC AND POLICY RESEARCH The Economic Impact of the Iraq War and Higher Military Spending Dean Baker May 2007 Center for Economic and Policy Research 1611 Connecticut Avenue NW Suite 400 Washington . 20009 202-293-5380 ii Contents Executive The Impact of Higher Military Spending What the Model How Spending on the Military and the Environment Cost About the Authors Dean Baker is Co-director at the Center for Economic and Policy Research in Washington DC. The Economic Impact of the Iraq War and Higher Military Spending 3 Executive Summary There has been relatively little attention paid to the Iraq War s impact on the . economy. It is often believed that wars and military spending increases are good for the economy. This is not generally true in most standard economic models. In fact most models show that military spending diverts resources from productive uses such as consumption and investment and ultimately slows economic growth and reduces employment. In order to get an approximation of the economic impact of the recent increase in military spending associated with the wars in Iraq and Afghanistan the Center for Economic and Policy Research commissioned Global Insight to run a simulation with its macroeconomic model. It produced a simulation of the impact of an increase in annual . military spending equal to 1 percent of GDP approximately the actual increase in spending compared with the pre-war budget see appendix . We selected the Global Insight model for this analysis because it is a commonly used and widely respected model. Global Insight produced a set of projections that compared a scenario with an increase in annual military spending equal to percent of GDP current about 135 billion relative to its baseline scenario. This is approximately equal to the increase in defense spending that has taken place compared with the pre-September 11th .