Military Expenditures and Income Inequality Evidence from a Panel of Transition Countries (1990-2015)

ABSTRACT

This paper contributes to the literature on military spending by analyzing the relationship between military spending and income inequality in a panel of transition economies over the period 1990–2015. In particular, we exploit three different measures of military expenditures: (i) military spending in absolute terms; (ii) military expenditures per capita; (iii) military burden, namely the ratio between military expenditure and GDP. Findings highlight a positive relationship between military expenditures and income inequality captured by means of three different measures of inequality. Results are also confirmed after we performed a variety of robustness tests. Other results are worth noting and somehow puzzling. For example, military conscription appears to have a redistributional effect and when considering a non-linearity the results show that there could be a concave relationship between military spending and income inequality. In addition, when testing for the ‘crowding-out argument’ results show that expenditures for subsidies are negatively influenced by military spending so confirming the crowding-out argument but there is no significant evidence when considering education and health expenditures.

KEYWORDS:

• Military expenditures
• income inequality
• political regime
• transition economies

JEL CLASSIFICATION:

• J24
• I24
• H5

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. If considering the Transparency International CPI index, it would be easy to verify that the average score of transition countries considered in this study is systematically worse than the European average in the period 1995–2017.

2. Data are drawn from SIPRI.

3. We have chosen to employ alternative measures of income inequality in the light of the [see among others Atkinson and Brandolini (2001) (Atkinson and Brandolini 2009), Jenkins (2015), Deininger and Squire (1996)].

4. See http://gcip.info/about.

5. The dataset and the codebook are accessible following the link: http://www.prio.no/CSCW/Datasets/Armed- Conflict/UCDP-PRIO/.

6. Please refer to Chletsos and Roupakias (2018) for explanations and literature employing a shift-share. To calculate our shift-share, we interpolate the data on military expenditure in order to obtain a series without missing values, namely a complete time series. Then, we compute the share of each country on total defense spending of the sample of countries taken into account (on total military spending of transition countries) for the base year 1990. After that, we multiply the initial share of each country by the total military expenditure in each year. Finally, we divide the result of multiplication by the GDP.

7. Differently from Chletsos and Roupakias (2018), we do not use a second instrument.

8. Definition: Subsidies, grants, and other social benefits include all unrequited, non-repayable transfers on current account to private and public enterprises; grants to foreign governments, international organizations, and other government units; and social security, social assistance benefits, and employer social benefits in cash and in kind (World Development Indicators, World Bank).

9. Definition: current health expenditures include health-care goods and services consumed during each year. This indicator does not include capital health expenditures such as buildings, machinery, IT and stocks of vaccines for emergency or outbreaks. (World Development Indicators, World Bank).

10. Education expenditures include expenditure funded by transfers from international sources to the government. General government usually refers to local, regional and central governments (World Development Indicators, World Bank).