1 Introduction 4

2 Data 6

 2.1 Defence Expenditure: Sources 7

 2.2 Composition of EU Defence Expenditure 8

 2.3 Order-Date Adjustment for Capital Expenditure 10

3 Empirical Model 12

4 Results 14

 4.1 Baseline Results: Total and Adjusted Total Defence 14

 4.2 Impact of Defence Spending Composition 18

 4.3 Capital Acquisitions and the Build-Up of Recurrent Defence Costs 20

 4.4 State Dependence and Fiscal Space 23

 4.5 Robustness 24

5 Conclusions 27