diff --git a/bundle/config/root.go b/bundle/config/root.go
index 60faba29..2bbb7869 100644
--- a/bundle/config/root.go
+++ b/bundle/config/root.go
@@ -338,13 +338,36 @@ func (r *Root) MergeTargetOverrides(name string) error {
 		"resources",
 		"sync",
 		"permissions",
-		"variables",
 	} {
 		if root, err = mergeField(root, target, f); err != nil {
 			return err
 		}
 	}
 
+	// Merge `variables`. This field must be overwritten if set, not merged.
+	if v := target.Get("variables"); v.Kind() != dyn.KindInvalid {
+		_, err = dyn.Map(v, ".", dyn.Foreach(func(p dyn.Path, variable dyn.Value) (dyn.Value, error) {
+			varPath := dyn.MustPathFromString("variables").Append(p...)
+
+			vDefault := variable.Get("default")
+			if vDefault.Kind() != dyn.KindInvalid {
+				defaultPath := varPath.Append(dyn.Key("default"))
+				root, err = dyn.SetByPath(root, defaultPath, vDefault)
+			}
+
+			vLookup := variable.Get("lookup")
+			if vLookup.Kind() != dyn.KindInvalid {
+				lookupPath := varPath.Append(dyn.Key("lookup"))
+				root, err = dyn.SetByPath(root, lookupPath, vLookup)
+			}
+
+			return root, err
+		}))
+		if err != nil {
+			return err
+		}
+	}
+
 	// Merge `run_as`. This field must be overwritten if set, not merged.
 	if v := target.Get("run_as"); v.Kind() != dyn.KindInvalid {
 		root, err = dyn.Set(root, "run_as", v)
@@ -444,6 +467,7 @@ func rewriteShorthands(v dyn.Value) (dyn.Value, error) {
 
 				if typeV.MustString() == "complex" {
 					return dyn.NewValue(map[string]dyn.Value{
+						"type":    typeV,
 						"default": variable,
 					}, variable.Location()), nil
 				}
diff --git a/bundle/config/root_test.go b/bundle/config/root_test.go
index 27cc3d22..aed670d6 100644
--- a/bundle/config/root_test.go
+++ b/bundle/config/root_test.go
@@ -132,3 +132,56 @@ func TestInitializeComplexVariablesViaFlagIsNotAllowed(t *testing.T) {
 	err := root.InitializeVariables([]string{"foo=123"})
 	assert.ErrorContains(t, err, "setting variables of complex type via --var flag is not supported: foo")
 }
+
+func TestRootMergeTargetOverridesWithVariables(t *testing.T) {
+	root := &Root{
+		Bundle: Bundle{},
+		Variables: map[string]*variable.Variable{
+			"foo": {
+				Default:     "foo",
+				Description: "foo var",
+			},
+			"foo2": {
+				Default:     "foo2",
+				Description: "foo2 var",
+			},
+			"complex": {
+				Type:        variable.VariableTypeComplex,
+				Description: "complex var",
+				Default: map[string]interface{}{
+					"key": "value",
+				},
+			},
+		},
+		Targets: map[string]*Target{
+			"development": {
+				Variables: map[string]*variable.Variable{
+					"foo": {
+						Default:     "bar",
+						Description: "wrong",
+					},
+					"complex": {
+						Type:        "wrong",
+						Description: "wrong",
+						Default: map[string]interface{}{
+							"key1": "value1",
+						},
+					},
+				},
+			},
+		},
+	}
+	root.initializeDynamicValue()
+	require.NoError(t, root.MergeTargetOverrides("development"))
+	assert.Equal(t, "bar", root.Variables["foo"].Default)
+	assert.Equal(t, "foo var", root.Variables["foo"].Description)
+
+	assert.Equal(t, "foo2", root.Variables["foo2"].Default)
+	assert.Equal(t, "foo2 var", root.Variables["foo2"].Description)
+
+	assert.Equal(t, map[string]interface{}{
+		"key1": "value1",
+	}, root.Variables["complex"].Default)
+	assert.Equal(t, "complex var", root.Variables["complex"].Description)
+
+}
diff --git a/bundle/tests/complex_variables_test.go b/bundle/tests/complex_variables_test.go
index ffe80e41..1badea6d 100644
--- a/bundle/tests/complex_variables_test.go
+++ b/bundle/tests/complex_variables_test.go
@@ -25,8 +25,10 @@ func TestComplexVariables(t *testing.T) {
 
 	require.Equal(t, "13.2.x-scala2.11", b.Config.Resources.Jobs["my_job"].JobClusters[0].NewCluster.SparkVersion)
 	require.Equal(t, "Standard_DS3_v2", b.Config.Resources.Jobs["my_job"].JobClusters[0].NewCluster.NodeTypeId)
+	require.Equal(t, "some-policy-id", b.Config.Resources.Jobs["my_job"].JobClusters[0].NewCluster.PolicyId)
 	require.Equal(t, 2, b.Config.Resources.Jobs["my_job"].JobClusters[0].NewCluster.NumWorkers)
 	require.Equal(t, "true", b.Config.Resources.Jobs["my_job"].JobClusters[0].NewCluster.SparkConf["spark.speculation"])
+	require.Equal(t, "true", b.Config.Resources.Jobs["my_job"].JobClusters[0].NewCluster.SparkConf["spark.random"])
 
 	require.Equal(t, 3, len(b.Config.Resources.Jobs["my_job"].Tasks[0].Libraries))
 	require.Contains(t, b.Config.Resources.Jobs["my_job"].Tasks[0].Libraries, compute.Library{
@@ -59,4 +61,10 @@ func TestComplexVariablesOverride(t *testing.T) {
 	require.Equal(t, "Standard_DS3_v3", b.Config.Resources.Jobs["my_job"].JobClusters[0].NewCluster.NodeTypeId)
 	require.Equal(t, 4, b.Config.Resources.Jobs["my_job"].JobClusters[0].NewCluster.NumWorkers)
 	require.Equal(t, "false", b.Config.Resources.Jobs["my_job"].JobClusters[0].NewCluster.SparkConf["spark.speculation"])
+
+	// Making sure the variable is overriden and not merged / extended
+	// These properties are set in the default target but not set in override target
+	// So they should be empty
+	require.Equal(t, "", b.Config.Resources.Jobs["my_job"].JobClusters[0].NewCluster.SparkConf["spark.random"])
+	require.Equal(t, "", b.Config.Resources.Jobs["my_job"].JobClusters[0].NewCluster.PolicyId)
 }
diff --git a/bundle/tests/variables/complex/databricks.yml b/bundle/tests/variables/complex/databricks.yml
index f7535ad4..ca27f606 100644
--- a/bundle/tests/variables/complex/databricks.yml
+++ b/bundle/tests/variables/complex/databricks.yml
@@ -23,9 +23,11 @@ variables:
       spark_version: "13.2.x-scala2.11"
       node_type_id: ${var.node_type}
       num_workers: 2
+      policy_id: "some-policy-id"
       spark_conf:
         spark.speculation: true
         spark.databricks.delta.retentionDurationCheck.enabled: false
+        spark.random: true
   libraries:
     type: complex
     description: "A libraries definition"