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" Who Pays for War? Economic Inequality, Financial Strategies, and War "
Chang, Chia-Chien
Cohen, Benjamin Jerry
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Latin Dissertation
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English
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898419
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TL4sb171s6
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| Main Entry
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Davenport, Michael Loehrlein
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| Title & Author
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Who Pays for War? Economic Inequality, Financial Strategies, and War\ Chang, Chia-ChienCohen, Benjamin Jerry
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| Date
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2019
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2019
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| Abstract
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This dissertation explores the critical importance of domestic economic inequality, an understudied factor, in the choices states make to finance war. It asks how states choose among the five major financing instruments during wartime: (1) taxation, (2) reduction in non-military spending, (3) domestic borrowing, (4) foreign borrowing, and (5) money creation. I develop a theory, which I term a “redistributionist theory of war finance,” to explain the variation in how modern states finance war. I argue that the choice of war finance is made through triangular strategic interactions among three sets of domestic actors: the leadership, the wealthy elite, and the public, the rest of a state’s population. I also argue that each war finance strategy is associated with specific redistributive consequences that create a cleavage between the wealthy elite and public. The redistributive consequences of war finance, and the risk of social instability, vary with the level of domestic economic inequality. Therefore, different levels of inequality (low, high, extremely high) shape state choices of war finance by affecting fiscal bargaining between the political leadership and societal actors during wartime. Domestic economic inequality affects the choice of war finance strategy by influencing a political leadership’s ability to achieve a successful fiscal bargain within society. When inequality is low, the public’s dependence on social programs is relatively mild, as is their demand for redistribution. On the other hand, the wealthy elites’ expected tax burdens are also moderate. As a result, the political leadership is more likely to secure a consensus of “equality of fiscal sacrifice” without causing serious instability. Specifically, leaders can more successfully enact progressive taxation and reduce nonmilitary spending to pay for war. Conversely, when inequality is high, the redistributive conflict between competing coalitions is likely to be more serious. Unable to strike a bargain of fiscal sacrifices without severe social instability, the leadership is expected to rationally delay redistributive conflict by resorting to borrowing. A deficit-financing strategy enables leaders to defuse public discord while appeasing the wealthy elite with potential investment opportunities and lower tax burdens. Especially when domestic economic inequality reaches the highest level, leaders will have incentives to rely primarily on foreign borrowing to finance war efforts. Finally, because money creation is associated with two different redistributive effects, I expect there to be a U-shaped relationship between domestic economic inequality and the choice of money creation. A state is more likely to include monetary creation in its war finance portfolio if the income distribution of the state is either equal or highly unequal. To examine my theory, I utilize a mixed-method research design with both quantitative and qualitative methods. First, I conduct a quantitative analysis of state war finance from 1950-2007. Second, I present two sets of comparative case-studies: (1) United States war finance in the Korean and Vietnam Wars; and (2) the Chinese and Japanese financing of the second Sino-Japanese War from 1937-1945. The findings support my theory. In showcasing the relationship between economic inequality and war finance, my dissertation identifies a novel mechanism in how inequality affects the distribution of financial burdens of war. It also contributes to the understanding of fiscal, financial, and monetary policy choices in the exigencies of war.
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Chang, Chia-Chien
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UC Santa Barbara
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