At the web seminar on 3 July 2025, the expert on geoeconomics, Christoph Trebesch presented a topical study that challenges conventional wisdom and brings empirical clarity to a historically theoretical debate on debt financing. As many European nations rapidly expand their defense budgets, the historical evidence suggests that deficit financing remains the most likely path forward without cuts to social spending.
On 3 July 2025, Trebesch followed the invitation by the Institute for Banking and Financial History (IBF), the Center for Financial Studies (CFS) and the Leibniz Institute for Financial Research SAFE and presented his research paper Guns vs. Butter? How States Finance Wars and the Military, co-authored with Jonathan Federle and Johannes Marzian (all Kiel Institute for the World Economy and Kiel University). Florian Heider, Scientific Director of SAFE, moderated the event.
How do states fund military expenditures?
The web seminar addressed a timely question regarding renewed emphasis on defense in Europe: How do states fund rising military expenditures, especially amid geopolitical tensions? Drawing on their newly compiled Global Budgets Database, a comprehensive, disaggregated dataset covering 150 years and 20 countries, Trebesch presented the first long-run, cross-country empirical study of military financing. He and his co-authors identified 114 “military spending booms,” both in wartime and peacetime. They analyzed whether these were funded through social spending cuts (cutting “butter”), tax increases, or through public debt. The findings contradict the idea of “guns vs. butter”, which assumes that higher military spending must go hand in hand with cuts to civilian goods. Most military buildups have historically been financed through borrowing and, to a lesser extent, taxation, especially under stable fiscal conditions. Cuts in social spending are rare.
Debt and taxes take the lead
Looking closer at the data, Trebesch revealed consistent patterns across time and regions: “War booms are financed both with debt as a main vehicle and with taxes as a secondary tool”. Notably, even during major conflicts, there was little evidence of social or other spending categories’ reductions. He pointed out that social spending tended to increase during war booms. This is a sign of the political and social constraints on austerity in times of conflict. Even in peacetime, Trebesch noted, while military spending increases were generally smaller, financing still relied more on a mix of debt and taxes rather than budget cuts.
