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Sustainability 2016, 8(7), 655; doi:10.3390/su8070655

Revisiting the “Guns versus Butter” Argument in China (1950–2014): New Evidence from the Continuous Wavelet Analysis

1
Department of Finance, School of Economics and Management, Southeast University, Nanjing 210096, China
2
School of Economics, Peking University, Beijing 100871, China
*
Author to whom correspondence should be addressed.
Academic Editor: Giuseppe Ioppolo
Received: 3 June 2016 / Revised: 30 June 2016 / Accepted: 5 July 2016 / Published: 13 July 2016
(This article belongs to the Section Economic, Business and Management Aspects of Sustainability)
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Abstract

The long-lasting “guns versus butter” argument reflects the fact that China has been experiencing a difficult choice in terms of improving the defense and social welfare sectors, and thus achieving fiscal sustainability. The result, however, is controversial. The present paper therefore re-examines the relationship between defense and social welfare by employing continuous wavelet analysis during a long period of 1950–2014 in China. We focus in particular on their dynamic correlation and the lead-lag relationship across different frequency bands. Our results clearly show the inexistence of the crowding-out effect between defense expenditure and social welfare; moreover, the increase in defense (social welfare) expenditure could stimulate the expansion of social welfare (defense) spending. In addition, we find a positive relationship between defense and social welfare with defense leading during 1961–1968 in the short term, when China suffered from the economic breakdown and the social turbulence caused by the Great Famine, Sino-Soviet border conflict, etc. Notably, social welfare also led the progress in defense during 1984–1988 and 1995–1998 in the medium and long terms by the further deepening of the opening-up policy and enforcing the economic system reform. View Full-Text
Keywords: defense expenditure; social welfare spending; crowding-out effect; continuous wavelet analysis; time-frequency domain defense expenditure; social welfare spending; crowding-out effect; continuous wavelet analysis; time-frequency domain
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).

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Zhang, Y.; Liu, X.; Wang, R.; Tang, R. Revisiting the “Guns versus Butter” Argument in China (1950–2014): New Evidence from the Continuous Wavelet Analysis. Sustainability 2016, 8, 655.

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