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Terror and its Fiscal Consequences

Author

Listed:
  • Benedict Clements
  • Sanjeev Gupta
  • João Tovar Jalles
  • Saida Khamidova
Abstract
We explore the impact of major terrorism shocks on macroeconomic and fiscal variables´dynamics using an unbalanced panel of 191 heterogeneous countries from 1970 to 2018. By means of the local projection method, we find that a terrorist shock lowers a country’s real GDP as well as government tax revenues and raises debt-to-GDP ratio. The composition of government spending shifts in favor of military spending. Low-income countries are affected more than both emerging market and advanced economies. Our results are robust to a battery of sensitivity and robustness tests.

Suggested Citation

  • Benedict Clements & Sanjeev Gupta & João Tovar Jalles & Saida Khamidova, 2020. "Terror and its Fiscal Consequences," Working Papers REM 2020/0140, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    • Handle: RePEc:ise:remwps:wp01402020
    as

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    File URL: https://rem.rc.iseg.ulisboa.pt/wps/pdf/REM_WP_0140_2020.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    fiscal policy; growth; armed conflict; terrorism; panel data; local projection method; seemingly unrelated regressions;
    All these keywords.

    JEL classification:

    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa
    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War

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