How would higher defence spending affect Finland’s economic growth?

Abstract

Along with many other European countries, Finland intends to increase its defence spending in the coming years. Higher defence spending would have a significant impact on the national economy, as it would increase public spending and affect both domestic and international demand. This article examines how such an increase in defence spending would affect economic growth and inflation in Finland in the period 2026–2029. The analysis is based on results from the Bank of Finland’s Aino model and simulations made using the so-called basic model elasticities (BME) for the euro area.