On the tradeoff between military and social spending

Frederiksen et al (1994) investigated whether, in Pakistan, there was a tradeoff between government spending on defense and other sectors. Their short-term model found no evidence of a tradeoff between military and social spending. But it suggested that there was substitution between defense and infrastructure expenditures.

Picture by Israel Palacio, Unsplash.

On the guns-versus-butter argument

The guns-versus-butter hypothesis hinges on the simple notion that government expenditures on any activity are, by definition, denied from elsewhere. As a result, it is argued, higher military expenditures lead to less spending on social sectors such as education and health.

Although the argument may appear persuasive at first, the economic literature paints a more mixed picture. Harris et al (1998), for example, found that countries that spent a high share of their budget on defense, did not routinely exhibit low education and health expenditures. And Looney (1986) found no consistent tradeoff between defense and social spending in Latin American countries. They argued that, in some cases, powerful political actors pushed for both higher military and social spending. In turn, governments borrowed more and limited other types of activities.

Modeling approach

Frederiksen et al (1994) focused on the case of Pakistan and used time series data from 1973 to 1986. During this time, the size of the military budget fluctuated considerably – it accounted for 48% of the total budget in 1974, and 33% in 1980. (See Figure 1.)

Figure 1: Pakistan’s military budget fluctuated considerably during the studied period

Source: Singh (2006). Note: Years represent financial year starts.

The researchers ran linear regressions of various programs’ budget shares on the military budget share, government debt, and the public deficit. (See equation below.) They argued that a government might choose to raise the deficit to fund a particular program, and that a higher level of debt could discourage the government from committing additional funds.

This was not the only model covered in their paper – but, for brevity, it will be the sole focus of this article.

A tradeoff between military and infrastructure spending?

The model’s results cast further doubt over the validity of the guns-versus-butter argument. After all, education and health spending shares were not found to be affected by changes in the defense spending share. And in the cases of social security, recreation, and housing, they appeared to be complementary. (See Figure 2.)

Figure 2: Across social sectors, the results don’t support the guns-versus-butter hypothesis

Source: Frederiksen et al (1994).

A tradeoff was found with regard to infrastructure spending. The share of the government budget spent on communication, transport, mining, and roads would generally drop when the military spending share would rise. (See Figure 3.) This suggests that there are indeed tradeoffs regarding military spending – but their exact form may depend on the respective government’s priorities.

 

Figure 3: The results indicate a tradeoff between military and infrastructure spending

Source: Frederiksen et al (1994).

Conclusion

The relationship between military and social spending appears to be a complex one, and one that is influenced by each government’s respective priorities. As a result, the guns-versus-butter argument may be better expressed as a context-specific call for reprioritization, rather than a deterministic model for social spending.