Analysing the nexus between income inequality and military expenditure in top ten defence expenditure economies

Abstract

This paper contributes to the literature on military expenditure by examining the relationship between military expenditure and inequality in the distribution of income in a panel set of top ten defence spenders over 1990 to 2015, including also wide specification of control variables. In particular, we explore the impact of military spending on three different measures of inequality, (i) Gini Measure, (ii) Theil Measure and iii) Income shared by the top 20 per cent of the population. Further, we also utilize different concepts of military spending in our analysis. The findings highlight that the impact of military spending on income inequality is negative. The findings are based on second generation panel estimation techniques. One per cent rise in military expenditure explored through the Dynamic Common Correlated Effects Estimation reduces Gini inequality by 2.90 per cent, reduces Theil measure of inequality by 0.12 per cent and reduces Top 20 per cent measure of inequality by 11 per cent. The findings of inequality reducing the impact of military expenditure are confirmed through alternative robustness tests. However, there are also some conflicting conclusions, for example, the application of the non-linear function of military expenditure makes the results sensitive to the different specification of inequality.