How the Piper is Paid: Regime Type and the Financing of Interstate Wars

Article Abstract:
Governments can finance the higher military spending associated with interstate war through a combination of cutting nonmilitary spending, imposing higher taxes, borrowing, and adopting an inflationary monetary policy. We argue that the incentives of survival-motivated leaders influence the strategies governments use to fund their war efforts and that regime type conditions the use of some finance strategies. Consistent with our expectations, we find that fighting an interstate war is associated with greater reductions in nonmilitary spending in dictatorships than in democracies and that contemporary democracies and dictatorships have largely avoided financing their wars through tax increases and inflation. We find little support for the argument that democracies finance their interstate wars through greater debt than nondemocracies.