No. 994: Who benefits from increases in military spending? An empirical analysis
John Beirne Asian Development Bank Haroon Mumtaz Queen Mary University of London Donghyun Park The SEACEN Centre Gazi Salah Uddin Linkoping University and Norwegian University of Life Sciences Angeliki Theophilopoulou Brunel University
November 10, 2025
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 (P100) via effects on business asset holdings.
J.E.L classification codes: C32; E44; E52.
Keywords: Military spending shocks; income inequality; wealth inequality; VAR models.