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When Countries Increase Their Military Budgets, They Decrease Public Health Spending

The following analysis appears in Volume 4, Issue 2 of the Peace Science Digest.

Citation: Fan, H.; Liu, W.; & Coyte, P. C. (2018). Do military expenditures crowd-out health expenditures? Evidence from around the world, 2000–2013.Defence and Peace Economics, 29(7), 766-779.

Keywords: military expenditures, government expenditures, public health

One key argument against military spending is that it “crowds out”government spending in public health. The evidence is mixed. Some argue that increased military spending has indirect but positive effects on public health — whether through the diversity of military expenditures or other “growth-stimulating” effects. Others suggest that there is a trade-off between military and public health priorities because government spending is constrained by limited resources. Using sophisticated statistical techniques, this article examines whether a causal relationship exists between military spending and public health spending.

Causal relationships: Correlation does not imply causation. A correlation (or, relationship) between variables does not necessarily mean that one caused the other. There could be an unknown or untested variable that affects the outcomes of both, or causation could run in the opposite direction that what was expected To determine a causal relationship, where one variable causes a change in another variable, a researcher much employ rigorous research methods to see if the evidence supports the conclusion.

Based on quantitative data from 197 countries from 2000 to 2013, the article finds that higher military spending “negatively impacts health expenditures, and therefore [becomes] an important risk factor for population health and individual well-being.” Military expenditures data was sourced from the World Bank’s Development Indicators (WDI) and the Stockholm International Peace Research Institute. Health expenditures were also sourced from the WDI. Other variables like gross domestic product (GDP) per capita, level of democracy, corruption perceptions index, and population demographics were included in the analysis.

The article finds that, over time, a 1% increase in military spending results in a 0.62% decrease in health spending. If a country’s GDP per capita increases over time, military spending is more responsive to those increases as compared to health spending. The trade-off between spending in military and spending in health is more intense for poorer countries.For lower-middle-income countries, a 1% increase in military spending is associated with a 0.962% drop in health spending. Upper-middle-income countries only see a 0.556% decline in health spending for a 1% increase in military spending.

Health, military, and other government spending are determined jointly in the budget allocation process. Because these decisions about government spending happen at the same time, it’s unclear if increased funding in one area causes decreased funding in another. Without an ability to account for simultaneous effects (when changes in one area of funding necessarily result in changes in all areas of funding because there are limited resources), it is difficult to determine a causal relationship showing that increases in the military budget alone resulted in a decline in public health spending. This decline could instead be caused by other variables (like increases in other budget spending categories, a smaller budget overall, or demographic shifts). To address this problem, the authors employ a statistical technique called structural equation modeling that can control for simultaneous effects and therefore demonstrate a robust causal relationship between increased military spending and decreased public health spending.

Other variables included in the research produced interesting if somewhat intuitive results. If a country’s population is generally older (seniors aged65 or older make up a greater share of the population), health spending increases. The existence of conflict in a country increases militaryspending. Countries with overall larger populations spend more per capitaon their militaries. A country’s level of democracy plays no significant role.

This research offers important evidence to the debate on military and health spending. However, there are two important caveats. First, the research methods did not incorporate the relative price of health care among countries in the sample. The price of medicine or a visit to the doctor varies country by country, which likely influences how much the government spends on health. Second, budget allocation processes are not always in line with fiscal years — politics often introduces delays to the budget allocation process. Researchers account for this problem by using lagged — or time-dependent — variables. This article excluded the use of lagged variables because it would have limited the amount of data available for analysis.

Contemporary Relevance:

The budget allocation process is one way that a government signals its priorities to its people or to other countries. This plays out every year as governments determine their annual budgets. How money is spent — and who gets to decide it — can be fundamental to questions of peace. Decisions on governmental spending can be the inspiration for protests or broader resistance movements. Much of the recent activism in the United States, like the Women’s March, is linked to healthcare spending. These questions also played out in the 2018 mid-term elections, helping to flip the House of Representatives to Democratic Party control.

Broadly, increased military spending is one component of militarization. This is concerning because it signals a preparation for war or other forms of violence. It is important to remain vigilant when politicians call for increased military expenditures and skeptical of the expressed reasons for those expenditures. Military spending has been a tool of past authoritarian regimes to increase economic output and tighten control over society — and it continues today. For example, the Egyptianmilitary owns several lucrative firms and has a history of staging coup d’états to exert political control over the country. Estimates differ, but some experts suggest that the Egyptian military accounts for upwards of 3% of the overall Egyptian GDP. At the same time, human rights violations in Egypt are on the rise.

Talking Points:

  • When military spending increases by 1%, spending on health decreases by 0.62%.
  • This trade-off is more intense in poorer countries, where a 1% increase inmilitary spending results in a 0.962% drop in health spending.
  • Population demographics and conflict also influence this trade-off: Countrieswith older populations spend more on health whereas countries with largerpopulations overall and countries experiencing conflict spend more on themilitary.

Practical Implications:

What do a 1% increase in military spending and a 0.62% decrease in public healthspending mean in real terms? For a hypothetical exercise, a government has a budget of 10 dollars and chooses to split it equally between military and health spending. Then, in the next budget allocation process, it applies this finding between military and health spending.

Military
Health
5 USD
5 USD
+1%
-0.62%
+0.05
-0.03
5.05
4.97

A few cents do not seem that bad. But it matters more on a larger scale. For example, a government has 5 million dollars to split between military and health spending.

Military
Health
2.5 million USD
2.5 million USD
+1%
-0.62%
+25,000
-15,500
2,525,000
2,484,500

That results in a 40,500 difference between the two spending categories. This simplification also assumes that the budgets were equal in the first place, but that’s often not the case. For a more realistic scale, the 2017 U.S. Federal Budget allocated 590 billion dollars to defense spending, 591 billion to Medicare, and 375 billion to Medicaid. For simplicity, the combined Medicare and Medicaid spending represents all health spending. Also, we are putting aside the fact that some health care spending comes out of the military budget, such as spending for veterans’ health care.

Military
Health
590 Billion USD
966 Billion USD
+1%
-0.62%
+5,900,000,000
-5,989,200,000
595,900,000,000
960,010,800,000

A theoretical 6 billion cut in public health would be devastating to the American public, which is why the main result of this article is so alarming. This is, of course, a simplified approach to understanding the trade-off between public health and military spending. There is little reason to suspect an impending 6 billion cut to U.S. public health spending. However, the Trump Administration has advanced budgets with large increases to defense spending. What other needed government expenditures are cut as a result of increased military expenditures? What does this signal to an American public about the priorities of the federal government?

Continued Reading:

SIPRI. (2019). World military expenditure grows to $1.8 trillion in 2018. Retrieved May 16, 2019.

National Priorities Project. (2018). The
souls of poor folk.
 
Retrieved May 16, 2019.

Brookings Institution. (2019). Quality over quantity: U.S. military strategy and spending in the Trump years. Retrieved May 16, 2019.

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