Military Expenditures and Income Inequality: Empirical Evidence From North American Countries

Military Expenditures and Income Inequality: Empirical Evidence From North American Countries

Buhari Doğan (Suleyman Demirel University, Turkey), Muhlis Can (Hakkari University, Turkey) and Osman Değer (Suleyman Demirel University, Turkey)
DOI: 10.4018/978-1-5225-4778-5.ch011

Abstract

Regardless of their level of developments, the income distribution problem is one of the most important economic and social problems the countries face. In recent years, scholars have performed multiple studies to determine the factors affecting income distribution. The purpose of this chapter is to examine the impact of military expenditures on income inequality in a sample of North American countries (the USA, Canada, and Mexico), within the context of the Kuznets curve. The study covers between 1995-2013. In unit root Peseran approach, in cointegration analysis, Durbin-Hausmann approach were employed. The findings show that the coefficient of the military expenditures series is positive and the coefficient of square of the military expenditures is negative. This situation shows that military expenditures first increase and then reduce income inequality. Findings indicate that there is an inverse “U” relationship between military expenditures and income inequality. Moreover, it has been detected that as economic growth increases income inequality decreases.
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Introduction

Even though the Cold War has ended, defense services still maintain their importance in the world and many countries continue to make significant expenditures in this area. The fact that the resources allocated to arms are increasing steadily suggests the question of whether these defense expenditures will create income inequality. Because defense expenditures come from the same budget as social transfer expenditures, such as education and health care, countries must make difficult trade-offs when making these expenditures. In this respect, increasing inequalities arising from high expenditures within and between countries, and on military budgets, have attracted attention from researchers and economists for the last two decades. Nevertheless, a number of studies examine the relationship between military expenditures and income inequality and reach conflicting experimental findings. In literature, scholars heavily concentrate on the relationship between defense expenditures and growth relationship. As a result of that, in the literature, researchers and economists have analyzed the effects of high military expenditures on economic progress. Ali (2007) carried out one of the first initiatives in the global measure to define the relationship between defense expenditures and income inequality1. Caputo (1975) was one of the first researchers interested in public policies on military and social expenditures. As this topic became popularized and more research was conducted, scholars such as Hassan, Waheeduzzaman and Rahman (2003), Al-Yousif (2002), Shieh, Lai and Chang (2002), Kollias, Manolas and Paleologou (2004a) and Kollias, Naxakis and Zarangas (2004b) focused on the relationship of defense expenditures and economic growth. For example, Benoit (1973) examined the relationship between economic growth and military expenditures.

All these studies proved the positive relationship between economic growth and military expenditures. The positive impact of military expenditures on economic growth has also been confirmed by many other researchers2. On the other hand, some researchers claim that there is a negative relationship between military expenditures and economic progress3. The relationship between defense expenditures and income inequality has been of interest to a few researchers, such as Ali (2007), Boswell and Dixon (1990), Auvinen and Nafziger (1999) and Jorgensen (2005), as mentioned above.

Key Terms in this Chapter

Canada: A country in the northern part of North America.

Kuznets Curve: Graphs the hypothesis that as an economy develops, market forces first increase and then decrease economic inequality.

Income Inequality: Income inequality is the proof that a country’s income is distributed unequally and inequitably by the individuals in that country.

Cointegration: See the methodology section.

Military Expenditures: A share that a country reserves from its national income to its defense with the purpose of ensuring its internal and external security.

Mexico: The federal republic in the southern part of North America.

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