Spending on personnel or equipment: panel analysis of military expenditures in the NATO countries 2005–2019

ABSTRACT

Defence effort is often discussed in terms of relative military spending – as % of GDP. The aggregate nature of this measure, however, hides important within-budget dynamics. Specifically, states have to make hard choices about distributing their spending among personnel and equipment expenditures. NATO has adopted a recommendation that 20% of the defence budget should go to equipment. Our paper contributes to the emerging literature on determinants of personnel vs. equipment share. We perform panel data regression on NATO countries between 2005 and 2019. Our results indicate that (i) equipment is more elastic to overall military expenditures than personnel, and (which is a novel contribution of our paper) (ii) that larger All-Volunteer Forces (AVF) create demands for increased personnel spending even well after the transitioning period, (iii) How mature is the AVF plays no role, while relative personnel costs is an important predictor. The second result yields especially important implications for the renewed policy debates on the limits of the AVF model in the context of European security.

KEYWORDS:

• Military expenditures
• NATO
• all-volunteer forces
• conscription
• armed forces

Acknowledgments

We appreciate comments and suggestions from Jan Ludvík and two anonymous reviewers. All errors remain our own.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Data availability statement

“Replication script and Data is available in 10.6084/m9.figshare.c.6729201.”

Notes

1 While equipment and personnel expenditures are often at the centre of attention, some papers analyse all the four categories (e.g. Becker 2019).

2 As we will not investigate the factors behind the size of a military budget it is worth mentioning that among the factors driving overall military spending down is, beyond threat perception, a state's adherence to fiscal rules of the EU (Becker 2019). Simply put, conservative fiscal policy leads to smaller defence budgets.

3 This increase might not be necessarily linear. If the additional manpower is mostly composed of lower ranks junior soldiers in the non-technical fields, the growth of personnel expenditures may be relatively slow (but still positive).

4 If the conscription means that there are regional military offices responsible for conducting the registration, physical examination and the final selection for the draft, the army will need to pay hundreds or even thousands of rather well-paid military or civilian bureaucrats.

5 Be aware that unemployment affects relative personnel expenditures (relative to the overall budget). In absolute values, personnel expenditures are likely falling (or stagnating), nevertheless, other parts of the military budget are declining faster.

6 Noticeably, the best-evaluated army on the European continent at the height of the Cold War was conscription-based German Bundeswehr, not British or US AVF armies (see Mearsheimer 1982).

Additional information

Funding

This work was supported by Charles University [UNCE/HUM/009].