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Fiscal Consequences of Terrorism
Author:
Mr. Serhan Cevik
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https://orcid.org/0000-0002-2373-2023
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John Ricco
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Series:
IMF Working Papers
Volume/Issue:
Volume 2015: Issue 225
Language:
English
Publication Date:
23 Oct 2015
DOI:
https://doi.org/10.5089/9781513510965.001
ISBN:
9781513510965
ISSN:
1018-5941
Pages:
22
Keywords:
WP; terrorism shock; Terrorism; tax revenue; military spending; impact of terrorism; terrorism indicator; coefficient estimate; terrorism term; terrorism sample; system GMM estimator; Defense spending; Total expenditures; Estimation techniques; Global
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund