The growth effects of the degree of democracy have recently been analysed in the literature. However, there is no general agreement as to the net effect of democracy on economic growth. Another strand of literature analyses the effects of increased levels of democracy on peace, arguing that as the degree of democracy increases, the probability of conflict between countries declines. From this line of argument it follows that more-democratic countries allocate less of their scarce resources for defence purposes than less-democratic states. This paper tests empirically if there is a negative relationship between the degree of democracy and defence expenditures. The empirical analysis is based on data for up to 92 countries for the time period 1987-1997. The relationship between the military expenditure and democracy is investigated by using cross section and panel estimation techniques. The results suggest that higher degree of democracy is associated with lower levels of military expenditure. © Springer-Verlag 2005.