Defence Spending and Income Inequality. An Asymmetric Empirical Evidence from a Decomposition Analysis of Defence Spending in the Case of Greece

This study is the first to empirically examine the asymmetric and compositional effects of defence spending on three different measures of income disparity. Using the Nonlinear Autoregressive Distributed Lag (NARDL) approach, the study analyses the short- and long-term impacts of disaggregated defence spending on income inequality in Greece. The findings have significant theoretical and policy implications. First, in the medium term, increased military spending in Greece widens income disparity by boosting the income share of the wealthiest. Second, in the long term, positive changes in military expenditures reduce income inequality, primarily benefiting lower-income groups. Third, long-term negative changes in defence spending harm middle- and low-income groups. Finally, the compositional analysis highlights that increases in military spending, mostly on personnel and, to a lesser extent, on equipment, improve long-term income equality, while decreases in spending on personnel significantly worsen income disparity. Given these findings and the evolving nature of warfare, Greece should gradually adopt a new defence strategy. This strategy should emphasise extensive personnel reserves, prioritise domestic military equipment over costly foreign alternatives, and rationalise defence expenditures by reallocating budget expenditures towards health, education, and social welfare programs. These measures would enhance living standards and reduce income inequality in Greece.