Abstract
Had there been no involvement in Afghanistan and Iraq, how much lower would military and health spending have been in the US and the UK? And what is the total effect of war on real output variations as compared with its counterfactual? We use a synthetic control method and find that while the UK and the US have experienced similar relative increases in health spending, especially towards the end of the 10-year window, the effect on military spending is much more pronounced in the US. We find that the combined cumulative costs amount to more than 17% of the US GDP and more than 9% of the UK GDP. Moreover, there are no robust signs of a convergence between the true and counterfactual levels of military spending while health spending shows a level shift in the last 5 years in both countries. Finally, there is no evidence of changes in the national income following the sharp increase in defense spending.
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