How Strong is the Relationship between Defence Expenditure and Private Consumption? Evidence from the United States

A long run conditional demand model is specified to provide empirical evidence on the relationship between government defence expenditure and private consumption in the United States. By assuming that government defence expenditure is exogenously determined with respect to private consumption decisions, the empirical results show a significant impact on the utility function of households and substitutable or complementary effects for specific categories of private expenditure. The findings are in line with the evidence that in aggregate it is possible to obtain a weak impact of defence expenditure on consumption.