When you hear news about the government spending more on the military, it actually makes it cheaper for regular companies to borrow money.
SSRN · March 17, 2026 · 6303139
The Takeaway
Standard economic theory suggests that massive government spending should 'crowd out' private investment and raise interest rates. Instead, this research shows that military spending news actually lowers long-term interest rates and the cost of debt for the entire private sector, not just for defense contractors.
From the abstract
We revisit the effect of government spending on corporate investment. Employing a narrative approach to identify exogenous variation in government expenditures (Ramey, 2011; Ramey and Zubairy, 2018), we find that a one-percentage-point increase in military spending news, as a share of GDP, raises capital expenditures of publicly listed US firms by more than one percent over five years. The investment response is not driven by contractors with the Department of Defense, financial constraints, unc