Arms or butter: The economic effect of an increase in military expenditure

This paper analyzes the economic effects of increasing military expenditure, a requirement in the Republic of Korea. The effects of military expenditure are examined with various scenarios concerning financial resources from an endogenous growth perspective. The dynamic Computational General Equilibrium (CGE) model is employed in order to measure the aggregate effect of changes in military expenditure. Raising the indirect tax rate is the best for GDP, but a corporate income tax rate increase is the best for gross output. The differences between short-term and long-term effects are verified by the dynamic change in each indicator.