Research
Research
Guns and Butter: The Fiscal Consequences of Rearmament and War
with Christoph Trebesch
Summary: We study the fiscal consequences of large military buildups. To do so, we assemble the Global Budget Database, a comprehensive dataset of disaggregated central government finances for 20 countries from 1870 to 2022. We identify 114 episodes of military spending booms, in peace and war, and analyze their financing and long-term fiscal legacy. Consistent with theory, wartime booms are financed primarily through debt, while peacetime booms rely on a more balanced mix of debt and taxes. In contrast to the classic notion of “guns versus butter,” we find little evidence that social spending is cut during military expansions. Instead, when societies rearm, they tend to choose guns and butter, resulting in higher debt, expenditures, and taxes. Debt rises and later falls, but tax rates and tax revenues remain elevated for 15 years or more. Large geopolitical shocks, in war and peace, result in higher taxes and a lasting fiscal expansion.
Presented: Munich Security Conference 2024, Northwestern University Economic History Lunch Seminar 2024, CEPR Geoeconomics Conference Berlin 2024, Stanford University Research Seminar, Columbia University Research Seminar, Kiel University, Frankfurt University and SAFE, Bank for International Settlements
Media coverage: The Economist, Financial Times, Frankfurter Allgemeine Zeitung, Neue Zürcher Zeitung, Die Zeit
with Julian Laabs, Johannes Müller, and Till Requate
Published in “Humanities and Social Sciences Communications” (2024)
Abstract: While our understanding of long-term trends in material wealth inequality in prehistoric societies has expanded in recent decades, we know little about long-term trends in other dimensions of wealth and about social developments within particular societal segments. This paper provides first evidence of inequality in relational wealth within the upper societal segment of a supra-regional network of communities in prehistoric Central Europe over the first four millennia BCE. To this end, we compiled a novel dataset of 5,000 single-funeral burial mounds and employed burial mound volume as a proxy for the buried individual’s relational wealth. Our analysis reveals a consistently high level of inequality among the buried individuals, showing a wave-like pattern with an increasing trend over time. Additionally, our findings show temporal shifts in the size of the upper societal segment. Based on a review of archaeological and paleo-environmental evidence, the temporal change in inequality may be explained by technological progress, climate and population dynamics, trade, and social networks, and/or sociopolitical transformations.