The Fiscal Component of Enhancing the Country’s Defense Capabilities

Introduction. The large-scale aggression of the russian federation against Ukraine has intensified threats to European and global security, which has led to a rise in defense budget expenditures in many countries worldwide. Alongside increased military expenditures, governments are implementing additional fiscal instruments to enhance defense capabilities, including government support instruments for the development of the defense industry on an innovative basis. The purpose of the article is to summarize international experience with fiscal instruments used to strengthen the capacity of the defense industry, as a key prerequisite for enhancing national defense capability and protecting against potential threats. Materials and methods. The following methods were used to conduct the study: systemic and historical-logical analysis, structural-functional analysis, and statistical comparisons. Results and discussion. The article analyzes the dynamics and targeted direction of defense spending in NATO countries; explores key factors in increasing the country’s defense capability and directions for transforming European defense policy. The approaches to state support for innovative development of the defense sector, the conditions for providing tax benefits for scientific research and development (R&D), the creation and implementation of innovations are summarized. The experience of addressing limited government funding for defense sector financing by strengthening the link between the military and civilian sectors of the economy is reviewed, particularly with regard to the use of defense R&D results in creating civilian innovations Fiscal instruments for government support of the defense-industrial complex aimed at enhancing national defense capability are identified. Conclusions. The full-scale war in Ukraine and other geopolitical shocks have highlighted the urgent need to increase military spending and ensure the development of the defense industry as a key prerequisite for strengthening the country's defense capability. Based on a generalization of international experience, fiscal instruments for ensuring national defense capability have been identified, including long-term contracts with arms manufacturers, additional government investments in the development of the defense industry, tax incentives for defense R&D and innovations by business entities, income tax benefits, and government procurement of products from domestic defense enterprises to meet current defense needs and update weapon reserves.