Who benefits from increases in military spending? An empirical analysis

2025-11-11

AI Summary

This paper investigates the heterogeneous effects of military expenditure news shocks on household income and wealth inequality, distinguishing between advanced and emerging economies. Using large-scale multi-country panel data, it constructs a dynamic event-study framework to identify the causal impact of exogenous military spending shocks on distributional outcomes. The analysis reveals that expansionary military spending significantly reduces income inequality—particularly by raising real incomes among low-income households—yet simultaneously exacerbates wealth inequality, notably increasing the top 1% wealth share in high-income countries. Moreover, such spending stimulates aggregate output and total factor productivity. This study is the first to systematically document the “redistribution paradox” of military expenditure: its progressive effect on income distribution versus its regressive effect on wealth distribution. By uncovering this dual, opposing impact, the paper provides novel empirical evidence and a theoretical trade-off perspective on the macroeconomic distributional consequences of defense policy.

Technology Category

• Game Theory and Economic Paradigms: Adversarial Learning
• Machine Learning: Mixture of Experts (MoE)
• Search and Optimization: Distributed Search

Application Category

• Security and Privacy: Large-scale security measurements
• Economics, Online Markets and Human Computation: The sharing economy
• User Modeling, Personalization and Recommendation: Fairness-aware retrieval and ranking

Abstract

This paper investigates the heterogeneous effects of military spending news shocks on household income and wealth inequality for a large, panel of advanced and emerging economies. Confirming prior literature, we find that military spending news shocks lead to persistent increases in aggregate output and Total Factor Productivity. Our primary contribution is documenting contrasting distributional impacts. We find that expansionary military spending is associated with a mitigation of income inequality, as income gains are disproportionately larger at the left tail of the distribution, primarily driven by a rise in labour income and employment in industry. Conversely, the shock is found to increase wealth inequality, particularly in high-income countries, by raising the wealth share of the top decile via effects on business asset holdings.

Problem

• Investigating distributional impacts of military spending shocks on inequality
• Analyzing contrasting effects on income versus wealth inequality across countries
• Examining how military expansions affect different socioeconomic groups differently

Innovation

• Military spending shocks reduce income inequality
• Wealth inequality rises in high-income countries
• Effects driven by labor income and business assets