Naval Postgraduate School

France, Germany, Greece and the United Kingdom Naval Postgraduate School

This thesis documents findings on the relationship of government budget deficits and defense spending for France, Germany Greece, and the United Kingdom in detail and for NATO and OECD country collectives. The thesis topic is relevant, as many European countries are justifying their recent cuts in defense spending with high government budget deficits. The author looked at different data sources and metrics to graphically analyze the developments in government budget deficits and defense expenditures for the selected countries over a fifteen-year period and statistically analyze possible interactions between lagged budget deficits and defense expenditures for NATO and OECD country collectives. Six regression models were developed and applied to the country collectives with different time periods, from 1975 to 2009. A fixed effects regression analysis was used to determine the significance levels and the standard errors of the independent variables. The research method consisted of four activities: review of related research, analysis of government budget spending levels, analysis of defense spending levels, and graphical and statistical analysis of government budget deficit and defense spending relationship. The literature survey focused on data research, theories on government budget deficits and defense spending and the European Union's Stability and Growth Pact.