Defence Expenditures and Income Distribution: Dynamic Evidence from Middle-Income Economies

Income inequality is a global concern that has been deepening over time and reinforces the rationale for public intervention. At the same time, national security concerns have become increasingly prominent across countries. In this context, defence expenditures represent an important instrument of fiscal policy. Defence spending exerts significant effects on other public expenditures, budget balance, employment, debt burden, and environmental sustainability, and thus is also expected to influence income distribution. Defence expenditure is not solely a security issue; it also emerges as a social welfare factor that shapes income distribution. This is especially evident in middle-income countries characterized by persistent institutional and economic vulnerabilities. Within this framework, the study aims to examine the effect of defence expenditure on income distribution in a dynamic panel of 42 middle- income countries over the period 2010–2020. The analysis employs the two-step System Generalized Method of Moments (System GMM). Furthermore, the Driscoll-Kraay standard errors estimator is utilized to ensure the robustness of the findings. The findings indicate that defence spending has a negative, statistically significant, and robust effect on income distribution.