Terror and its Fiscal Consequences

Benedict Clements, Sanjeev Gupta, Joao Jalles and Saida Khamidova

No 2020/0140, Working Papers REM from ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa

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.

Keywords: fiscal policy; growth; armed conflict; terrorism; panel data; local projection method; seemingly unrelated regressions (search for similar items in EconPapers)
JEL-codes: H56 O15 O23 O55 (search for similar items in EconPapers)
Date: 2020-08
New Economics Papers: this item is included in nep-eec
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Persistent link: https://EconPapers.repec.org/RePEc:ise:remwps:wp01402020

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