To Battle Income Inequality, Focus on Military Expenditures: Lesson from Pakistan

This study investigates the impact of military expenditures on income inequality in Pakistan using data over the period of 1972-2012. In doing so, we have applied the ARDL bounds testing cointegration approach which confirmed the presence of long run relationship between military expenditures and income inequality. Furthermore, empirical analysis indicates that military expenditures have positive impact on income inequality. The analysis of Granger causality, Toda and Yamamoto Modified Wald causality and variance decomposition approaches confirm the unidirectional causal relationship running from military expenditures to income inequality. The findings suggest that military expenditures would be a significant policy option to control income inequality and should be considered as a mean to improve income distribution in Pakistan.