The effect of defence expenditure on income inequality: empirical evidence from Pakistan

Abstract

Every government needs sustainable economic development, and the degree of income inequality (later INE) significantly impacts how the economy develops. Furthermore, the defence expenditure (later DE) has always been a significant part of the government's budget, especially in developing countries like Pakistan, significantly affecting income inequality. This study was carried out to determine how Pakistan’s income inequality is affected by defence spending. The time series data from 1972 to 2021 were used in this investigation and used the ARDL technique to estimate the data and other diagnostics. According to this study, income inequality and defence spending are positively correlated. Like how GDP, FDI, and the unemployment rate hurt income inequality in Pakistan, the inflation rate also has a beneficial impact on it. Furthermore, there is no causality between defence expenditure and income inequality. This study recommended that policymakers adapt their strategies by prioritising the basic and primary sectors to lessen this imbalance and concentrate on measures to boost the nation’s economic activity and ultimately lower income inequality.