Guns versus Butter: The Indirect Link

Abstract

Studies of the guns versus butter trade-off found no evidence for the existence of a trade-off in the pre-Reagan era (see Russett 1982; Domke, Eichenberg, and Kelleher 1983; Mintz 1989). This study extends prior research by examining not only the direct, immediate effects of defense spending but also the indirect impact of arms expenditures on education spending. A three-equation model is specified and empirically estimated using data from 1953 to 1987. The results show no negative short-term effects but do show significant indirect long-term trade-offs.