Guns vs. Taxes? A Look at How Defense Spending Affects U.S. Federal Tax Policy

Authors


  • Deborah A. Carroll is an Assistant Professor in the Department of Public Administration within the School of Public and International Affairs at The University of Georgia, 204 Baldwin Hall, Athens, GA 30602, Phone: (706) 583-0553, Fax: (706) 583-0610. With a specialization in public financial management, her research focuses on fiscal policy issues pertaining to state and local governments with an emphasis on taxation, revenue diversification, debt financing, and urban economic development. She can be reached at dcarroll@uga.edu.

Abstract

Although studies have shown a theoretical and empirical link between defense spending and economic growth and between economic growth and tax policy, the impact of defense spending on federal tax policy remains largely unexplored. This paper proposes a theoretical model and empirical test to explore the direct and indirect effects of defense spending on federal tax policy. The findings suggest that consumption expenditures for national defense directly influence the federal corporate income tax rate. However, the analysis finds no indirect relationship between defense spending and federal tax policy mediated through economic growth.

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