Effects of Alternative Defense Budgets on Employment
CONGRESSIONAL BUDGET OFFICE (U S CONGRESS) WASHINGTON DC
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The end of the Cold War has precipitated sharp cuts in U.S. defense budget Under the plan prepared by the Bush Administration, real reductions in defense spending would have continued at least until 1997. The Clinton Administration has now presented a budget proposal that makes larger reductions in defense spending than those planned by the Bush Administration. In the long run, cuts in defense and other federal spending could lead to permanently higher levels of consumption and income if they are used either to reduce the federal deficit or to fund carefully chosen federal investments. The effects of these two choices differ, however, in the short term. Cuts in defense spending-indeed, cuts in any type of federal spending-tend to reduce temporary employment and income if they are used to reduce the deficit. Coupling defense cuts with equal increases in public sector investments or with increases in other types of nondefense spending, could offset most of those adverse short-run effects. The analysis presented in this paper attempts to isolate the short-run effects of cutting defense spending not to forecast what overall budgetary choices the Congress will make. The analysis therefore assumes that defense spending reductions, rather than being offset by increases in nondefense spending, are used to reduce the federal deficit.
- Economics and Cost Analysis