Defense spending in a time of debt: the case of France

Résumé En

Recent events show that the current French defense policy has to cope with a double constraint: on the one hand, strategic factors involve substantial changes in the armed forces organization in order to face new threats, formulated in the White book on defense and se- curity (2013), whereas on the other hand, the current economic crisis increases budgetary pressures. Such duality is in the core of the current trade-off in resources allocated to defense policy. Budgetary issue remains crucial for policy makers because public debt exceeds 90% of GDP which is, according to Reinhart and Rogoff (2010), the threshold above which the economic growth is impaired. Moreover, many studies conducted in the case of France argue that defense spending serves as expandable line in favor of non-military spending. At the same time, France is involved in many peaceking operations. Under these circumstances, both strategic and budgetary considerations exert an impact on the French defense burden. This article aims at answering to the main following question: does budgetary constraint negatively or positively influences the level of defense spending? The literature shows that economic factors are very significant in the defense demand func- tion (Smith, 1995). This is also true in the case of France (see Schmidt et al, 1990 or more recently Malizard and Droff, 2014). However, no recent study deals with budgetary issues. This point is the main originality of this paper. Assuming that budgetary constraints can roughly be modelled by public debt, we include later variable in a larger model including the US defense spending, periods of overseas oper- ations and political factors. This empirical strategy is consistent with the pioneering Smith (1989)' model. An Autoregressive Distributed Lag (ARDL) model allows us to evaluate the impact of public debt on both total defense spending and its disaggregated elements such as equipment and non-equipment expenditures. The results show that public debt negatively impacts defense spending, which is consis- tent with our expectations. At the agreggated level, public debt exerts a negative impact on defense expenditure. Moreover, at the disaggregated level, equipment spending is more affected by budgetary constraints than non-equipment spending.