THE SIGNIFICANCE OF MILITARY SPENDING IN EVALUATING FISCAL POLICY EFFECTS

The aim of this article is to analyze the impact of military spending shocks on GDP in the Czech Republic, Poland and Hungary. This study is based on SVAR model with identification scheme of O. Blanchard and R. Perotti. Our model includes three variables: real GDP, net taxes and military spending, which is more exogenous than other government spending. The results show that military spending has a strong influence on GDP growth in analyzed countries - in each country, the peak multiplier is significantly higher than one. The results exhibit that traditionally estimated multipliers of government spending probably underestimate the impact of fiscal policy on the economy. The impulse response functions indicate significant differences in durability of the effects of changes in government expenditure. In case of Poland, the impact of military spending shocks on GDP is most persistent, while in Hungary it expires within two years after the shock.