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

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.