Military spending and income inequality: evidence from the militarization share index

This paper examines how the composition of public spending, particularly the balance between military, health, and education spending, is associated with income inequality and the distribution of income between labor and capital. Using an unbalanced panel of up to 109 countries from 2000 to 2023, we construct a militarization share that measures the military’s share of combined military, health, and education spending, along with a change-based index of shifts in spending priorities. Neither measure assumes that higher military spending comes at the expense of social spending; instead, we test whether such a trade-off occurs. Inequality is measured using alternative Gini coefficients, the wage share, and the profit rate. Employing various estimation methods, we find that a higher militarization share is associated with a lower wage share and a higher profit rate. These estimates are broadly stable across methods, while the positive association with household inequality is more sensitive to model specification. The results suggest that greater priority given to military spending over social investment is associated with a shift in income from labor to capital, which appears more clearly in the functional distribution of income than in household inequality measures.