The political economy of the peace dividend

We develop a model of the peace dividend and use it to predict the fiscal consequences of a reduction in the demand for military spending. The model is based on the assumption that the political process responds to political demands and costs in a way that maximizes net political benefits. The predictions of our model on how a peace dividend will be allocated over nonmilitary spending, tax relief, and deficit reduction is tested against the experience of eight major wars in United States history.