Growth, Taxes and Guns: A Multifaceted Analysis of Military Expenditure Drivers

This study aims to validate assumptions established by primary literature regarding the bidirectional causality between military spending and economic growth, and further develop the analysis of the main drivers of military expenditures in NATO countries. The empirical analysis is based on a sample of 30 NATO countries, with the main objective of investigating the role of other factors that might influence military spending. In addition to the common view that economic growth and population are the main drivers, we propose additional exogenous factors, such as fiscal policy determinants, that could play a key role in enhancing or reducing military spending. Our findings support the existence of a bi-directional causality between GDP and military spending. Additionally, we find that military expenditure is highly responsive to tax revenues collected for public coffers.