Fiscal Consequences of Terrorism

Author/Editor:

Serhan Cevik ; John Ricco

Publication Date:

October 23, 2015

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper provides an empirical analysis of how the frequency and severity of terrorism affect government revenue and expenditure during the period 1970–2013 using a panel dataset on 153 countries. We find that terrorism has only a marginal negative effect on tax revenue performance, after controlling for economic and institutional factors. This effect is also not robust to alternative specifications and empirical strategies. On the other hand, we find strong evidence that terrorism is associated with an increase in military spending as a percent of GDP (and a share of total government expenditure). Our estimations reveal that this impact is greater when terrorist attacks are frequent and result in a large number of fatalities. Empirical findings also support the view that public finances in developing and low-income countries are more vulnerable to terrorism than those in countries that are richer and diversified.

Series:

Working Paper No. 15/225

Subject:

English

Publication Date:

October 23, 2015

ISBN/ISSN:

9781513510965/1018-5941

Stock No:

WPIEA2015225

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

22

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