Who pays for rearmament? Budget re-compositing and fiscal expansion in the European Union

Abstract

Russia’s full-scale invasion of Ukraine altered European security priorities, but a higher defense share does not by itself establish cuts elsewhere. This study ex-amines all ten functions of government in the EU-27 using Eurostat data for 2005–2024. Exact budget shares are paired with percentage-of-GDP outcomes, a post-2022 geographic-exposure design, country and year fixed effects, few-treated-cluster inference, false-discovery-rate control, and equivalence tests. Across the full panel, a one-percentage-point higher defense share is most strongly associated with a 0.871-point lower economic-affairs share; smaller as-sociations for environmental protection, housing, and recreation are statistically detectable but fall within a ±0.25-point equivalence bound. Health, education, and public order associations are equally small, whereas social protection re-mains inconclusive. After 2022, the eight more-exposed countries do not show a statistically robust differential increase in the defense budget share (0.362 points; wild-bootstrap p = .267). They do, however, expand total expenditure by 3.034 percentage points of GDP (p < .001). The early rearmament episode, therefore, reflects fiscal expansion more clearly than broad program displacement.