thus supports the view that the draft involves dynamic costs from postponement
of education and shorter work careers.
We identify and assess dynamic costs of conscription in a general equilibrium
model based on individual life cycle decisions. Individuals allocate time across
work, learning and leisure and maximize intertemporal utility subject to an in-
tertemporal budget constraint. We calibrate first the model to a steady state
equilibrium without compulsory service. The production of final goods combines
labor services and physical capital, and aggregate output is either invested or
consumed by both individuals and the public sector. Public expenditures are fi-
nanced by a proportional tax rate on labor income, and the government operates
with a dynamic budget constraint that is balanced in each period. Conscription
is then introduced as an obligation by a share of the population to spend the
first economically active year doing work instead of being allowed to freely allo-
cate time between work, learning and leisure. We distinguish two features of the
draft. First, we assume that labor services during conscription are paid at the
market wage rate. Second, we introduce a supplementary tax on income during
conscription.
Our results show that both the constraint on time and the supplementary in-
come tax during conscription create dynamic excess burdens (output and utility
losses). Ignoring general equilibrium effects, the constraint on allocation of time
distorts investment in human capital, while the supplementary tax on income
has a negative impact on private saving and physical capital accumulation. The
impact of the draft is significant at the individual level. More than a decade
after completion of conscription, former conscripts have not caught up in pro-
ductivity compared to non-conscripts at the same age. The economic burden of
the draft may also have negative income effects for non-conscripts due to general
equilibrium effects.
2TheModel
We apply a dynamic life cycle model in which individuals spend time on labor
supply, learning and leisure. Private and public agents have perfect knowledge
about current and future economic events, and individuals maximize lifetime util-
ity from consumption and leisure subject to an intertemporal budget constraint.
Labor income taxes are collected by the public sector to satisfy a given revenue
requirement, which is spent on public provision of goods and services.
The model represents a closed economy where the production technology com-
bines labor services and physical capital. Perfect competition prevails in each
market, and private and public agents take output and factor prices as given.
Individuals are economically active for 60 years, beginning at age 18 and ending
at age 77.
Including human capital formation provides one way of explaining the exis-