Journal of Economics and Management Volume 14, No. 1 February, 2018

Does Taiwan's Defense Spending Crowd out Education and Social Welfare Expenditures?

Chiung-Ju Huang

Department of Public Finance, Feng Chia University, Taiwan.

Yuan-Hong Ho

Department of Public Finance, Feng Chia University, Taiwan

Abstract

This study utilizes an asymmetric Granger causality test to investigate the causal effect between defense spending and social welfare and education expenditures in Taiwan over the period 1962-2017. The main findings herein do not support that defense spending crowds out social welfare and education expenditures. On the contrary, a positive defense spending shock causes a positive shock to social welfare expenditures. More specifically, increases in defense spending appear to lead to increases in social welfare expenditures. One of the explanations behind this relationship may be that a rise in Taiwan’s defense spending is helpful for both political and economic stability, which in turn promotes economic growth and further escalates social welfare expenditures.

Keywords：Asymmetric Granger Causality Test, Crowding-Out Effect, Defense Spending, Education Expenditures, Social Welfare Expenditures.

JEL Classifications：C32, C52, H52, H53.

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