The Nexus Between Military Spending and Income Inequality in Brics Nations

Abstract

ABSTRACT: There are contradicting views regarding the casual nexus between a country's military spending and its nation's income inequality. Military spending is a critical component of government budget and can simply crowd out transfer payments, needed to improve income inequality. However, these payments can also stimulate a demand that can enhance the income prospects of the low-income earners. So, the association between military spending and income inequality is a vital question. The aim of this study is to examine the relationship between military spending and income inequality for BRICS countries (Brazil, Russia, India, China and South Africa). We used panel data extracted from different sources such as World Bank's World Development Indicators and Penn World Tables. This is the first study that disaggregate the data and compute the results for the full sample (all BRICS countries taken together) and for sub-samples for countries with military expenditure of about 2% of GDP (India, china and Russia) and countries with military expenditure of less than 1% of GDP (that is, South Africa and Brazil). Thus, to unravel the influence of military spending on income inequality, pool mean group (PMG) or panel autoregressive distributed lag (PARDL) approach was applied for the period from 1990–2017 for BRICS nations. Overall, the empirical result for the pooled sample established an inverse relationship between military expenditure and income inequality. A percentage change in military expenditure result in income inequality reduction within the BRICS community. The estimated coefficient of GDP per capita, show that a percentage increase in GDP per capita in the long run will lead to about -0.209756 reduction in the level of income inequality and statistically significant at 1% level. When data was disaggregated to reflect the BRICS countries whose military expenditure was about 2% of the national budget (i.e. Russia, China and India), the study found that military expenditure had a negative influence on income inequality in the long run equation. Based on the outcome of this empirical work, we recommend for policy makers should focus more on the policies which can improve economic activities within the BRICS nations and ultimately reduce income inequality.