The Economic Effects of a Reduction of Military Expenditure and Arms Productions. Evidence from the EU

The aim of this paper is twofold: 1) to evaluate the economic effects of a military expanditure reduction in the European Union; 2) to examine the economic and financial profile of the Defence industry, with a specific focus on the European market of Defence and Aerospace (D&A) companies. Defining the perimeter of the military expenditure which might be reduced requires both qualitative and quantitative assumptions. The basic constraint we follow to this regard is the minimisation of the negative impact of personnel and on R&D with civil-side spillovers. We have evaluated the effects on GDP in the EU and, for the seven countries with the highest defence expenditure, we have also assessed the increase in unemployment as well as the decrease in fiscal revenues and R&D associated to a cut in the military expenditure. Results show that the impact of a 5% reduction of arms spending could release substantial resources without penalising too much the financial soundness of arms producers.