The Impact of Military Spending on Income Inequality

ABSTRACT The present paper develops a theoretical model by incorporating both the demand‐side and supply‐side effects of military spending to further investigate how military spending influences income inequality. This study argues that labor supply, military spending, and stochastic shocks all play critical roles in shaping income distribution. First, the analysis proves that the net effect of labor supply on inequality is ultimately indeterminate, depending on the relative strength of its direct and indirect effects. Furthermore, our findings confirm the validity of the inequality‐narrowing hypothesis. Finally, the study shows that an increase in the stochastic term leads to greater income inequality, thereby establishing a positive relationship between economic uncertainty and distributive disparity.