Peace Dividend

DEFINITION of 'Peace Dividend'

The money that becomes available in a national government's budget when the country is at peace, and can afford to reduce its defense spending. The term "peace dividend" is also used to refer to an increase in investor confidence that sparks an increase in stock prices after a war ends or a major threat to national security is eliminated. The money saved from defense spending is usually used towards housing, education and other projects.

BREAKING DOWN 'Peace Dividend'

During the four decades of the Cold War, U.S. defense spending averaged 40% to 50% of total federal spending. The massive drop in defense spending in the years following the Cold War are commonly called a peace dividend. U.S. defense spending represented about 15-20% of the federal budget in the first decade of the 2000s, with the country fighting wars in Iraq and Afghanistan.