It is widely acknowledged that “the sinews of war are infinite money.” And how wars are paid — either through taxation, cutting nonmilitary spending, borrowing, or money creation — can have a huge consequence on state power and financial stability. So what affects states’ war finance strategies? I analyze the critical importance of domestic economic inequality, an understudied factor, in the choices states make to pay for war. I argue that inequality shapes state choices of war finance by affecting fiscal bargaining among three sets of domestic actors during wartime: the leadership, the wealthy elite, and the public. When inequality is low, the leadership is more likely to secure a consensus of “equality of fiscal sacrifice” between the wealthy elite and the public. As a result, the leadership can more successfully enact progressive taxation and reduce nonmilitary spending to pay for war. Conversely, when inequality is high, the societal redistributive conflict could be more serious. Unable to strike a bargain of fiscal sacrifices without severe social instability, the leadership is expected to resort to a debt-financing strategy.
I conduct a quantitative analysis of state war finance from 1950-2007. I also 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. In showcasing the relationship between economic inequality and war finance, I contribute to the understanding of how inequality affects the distribution of financial burdens and financial policy making in the exigencies of war.
About the Speaker
Dr. Chia-Chien Chang is a non-resident research fellow at the Center for Southeast Asian Studies, National Chengchi University, Taiwan. He is also a managing editor of Asia Insights, an online magazine of international relations and regional dynamics in Asia published by National Chengchi University. His current working projects include a book project on economic inequality and war finance, and projects on China’s Belt & Road Initiatives, the Asian Infrastructure Investment Bank, and RMB Internationalization. Dr. Chang received a PhD in Political Science from the University of California Santa Barbara. His work has been acknowledged by the Silas Palmer Research Fellowship of Hoover Institution Library & Archives at Stanford University, and the Chiang Ching-Kuo Foundation Dissertation Fellowship, among others. He is a former Fulbright Scholar.