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Defense planning and fiscal strategy

  • Political Science


In this article, we consider the optimal fiscal strategy of a�government interested in maximizing expected social welfare in the face of a�potential future security threat. While the common wisdom is that countries facing security threats should seek to bolster their fiscal position in order to 'save for a�rainy day', we find that the optimization of expected social welfare may require governments to run 'precautionary' fiscal deficits.

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