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Fiscal Consequences of Armed Conflict and Terrorism in Low- and Middle-Income Countries

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Author Info

  • Benedict J. Clements
  • Sanjeev Gupta
  • Shamit Chakravarti
  • Rina Bhattacharya
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    Abstract

    This paper analyses the fiscal effects of armed conflict and terrorism on low- and middle-income countries. An analysis of 22 conflict episodes shows that armed conflict is associated with lower growth and higher inflation, and has adverse effects on tax revenues and investment. It also leads to higher government spending on defense, but this tends to be at the expense of macroeconomic stability rather than at the cost of lower spending on education and health. Our econometric estimates are consistent with the hypothesis that conflict and terrorism have a significant negative impact on growth through changes in the composition of government spending. On the revenue side, the fiscal accounts are affected only through reduced real economic activity. Thus there is potential for a sizable "peace dividend" for countries that are able to resolve conflict and terrorism.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 02/142.

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    Length: 28
    Date of creation: 01 Aug 2002
    Date of revision:
    Handle: RePEc:imf:imfwpa:02/142

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    Keywords: Terrorism; armed conflict; internal conflict; armed conflicts; terrorist; military spending; conflict countries; terrorist activities; civil wars; international terrorist; terrorist incidents; political instability; terrorist attacks; international security; civil war; international civil conflict; physical protection; national security; conflict economies; rebellions; violent conflicts; income per capita; risk of conflict; military forces; high risk; growth collapses; financing of nuclear material; terrorist acts; terrorist threats; social sectors; terrorist group; terrorist bombings; emergency assistance; terrorist groups; international community; costs of conflict; post-conflict economies; conflict episodes; costs of violence; external shocks; armed force; terrorist activity; foreign investment; social conflict;

    References

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    Cited by:
    1. Nicholas Staines, 2004. "Economic Performance Over the Conflict Cycle," IMF Working Papers 04/95, International Monetary Fund.

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