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Exploring the dynamics between terrorism and anti-terror spending: Theory and UK-evidence

  • Peren Arin, K.
  • Lorz, Oliver
  • Reich, Otto F.M.
  • Spagnolo, Nicola

Abstract Recent years have seen governments restricting civic freedoms and legislating significant increases in spending to combat terrorist activities. In this paper, we investigate the relationship between anti-terror spending and terrorism. In line with previous findings in the empirical literature on terrorist activity, our game-theoretic model of the interaction between a benevolent government and a terrorist organization is suggestive of a non-linear relation between terrorism and counter-terrorism spending. Using UK data, our empirical Markov-switching implementation provides evidence in favor of this approach. The empirical results also show that the probability of transiting into a state with high terror is smaller if defense spending is high.

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Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 77 (2011)
Issue (Month): 2 (February)
Pages: 189-202

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Handle: RePEc:eee:jeborg:v:77:y:2011:i:2:p:189-202
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  1. Abadie, Alberto, 2004. "Poverty, Political Freedom, and the Roots of Terrorism," Working Paper Series rwp04-043, Harvard University, John F. Kennedy School of Government.
  2. Walter Enders & Todd Sandler, 2005. "Transnational Terrorism 1968–2000: Thresholds, Persistence, and Forecasts," Southern Economic Journal, Southern Economic Association, vol. 71(3), pages 467-482, January.
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  14. repec:diw:diwdiw:diwepb16 is not listed on IDEAS
  15. Eckstein, Zvi & Tsiddon, Daniel, 2004. "Macroeconomic consequences of terror: theory and the case of Israel," Journal of Monetary Economics, Elsevier, vol. 51(5), pages 971-1002, July.
  16. Feichtinger, G. & Hartl, R.F. & Kort, P.M. & Novak, A.J., 2001. "Terrorism control in the tourism industry," Other publications TiSEM 06ce575b-82fc-41e0-9141-9, Tilburg University, School of Economics and Management.
  17. Konstantinos Drakos & Nicholas Giannakopoulos, 2009. "An econometric analysis of counterterrorism effectiveness: the impact on life and property losses," Public Choice, Springer, vol. 139(1), pages 135-151, April.
  18. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
  19. Faria Joao Ricardo, 2003. "Terror Cycles," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 7(1), pages 1-11, April.
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