IDEAS home Printed from https://ideas.repec.org/p/hal/wpaper/halshs-01161601.html
   My bibliography  Save this paper

Terrorism and Fiscal Policy Volatility in Developing Countries: Evidence from cross-country and Panel Data

Author

Listed:
  • Urbain Thierry Yogo

    (CERDI - Centre d'Études et de Recherches sur le Développement International - UdA - Université d'Auvergne - Clermont-Ferrand I - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper investigates the effect of terrorism on fiscal policy volatility in developing countries. Using both cross-country and panel data analysis for 66 countries from 1970 to 2012, we find that an increase in the number of terrorist incidents raise the volatility of the discretionary component of fiscal policy. In addition, the analysis shows that fiscal volatility is positively influenced by the volatility of output growth, the consumer price inflation volatility, the degree of fractionalization of both the government and the opposition. The results also show that the volatility is higher is countries of small size and lower in more democratic countries. Our results are robust to reverse causality, endogeneity bias and the presence of various controls. This paper complements and extends the previous literature by providing the evidence that terrorism substantially increases the uncertainty surrounding the conduct of fiscal policy in developing countries.

Suggested Citation

  • Urbain Thierry Yogo, 2015. "Terrorism and Fiscal Policy Volatility in Developing Countries: Evidence from cross-country and Panel Data," Working Papers halshs-01161601, HAL.
    • Handle: RePEc:hal:wpaper:halshs-01161601
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01161601
    as

    Download full text from publisher

    File URL: https://shs.hal.science/halshs-01161601/document
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Arthur Lewbel, 2012. "Using Heteroscedasticity to Identify and Estimate Mismeasured and Endogenous Regressor Models," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 30(1), pages 67-80.
    2. António Afonso & Luca Agnello & Davide Furceri, 2010. "Fiscal policy responsiveness, persistence, and discretion," Public Choice, Springer, vol. 145(3), pages 503-530, December.
    3. Marcelo J. Moreira & Brian P. Poi, 2003. "Implementing tests with correct size in the simultaneous equations model," Stata Journal, StataCorp LP, vol. 3(1), pages 57-70, March.
    4. Dani Rodrik, 1998. "Why Do More Open Economies Have Bigger Governments?," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 997-1032, October.
    5. Kis-Katos, Krisztina & Liebert, Helge & Schulze, Günther G., 2011. "On the origin of domestic and international terrorism," European Journal of Political Economy, Elsevier, vol. 27(S1), pages 17-36.
    6. Woo, Jaejoon, 2011. "Growth, income distribution, and fiscal policy volatility," Journal of Development Economics, Elsevier, vol. 96(2), pages 289-313, November.
    7. Marshall Burke & Solomon M. Hsiang & Edward Miguel, 2015. "Climate and Conflict," Annual Review of Economics, Annual Reviews, vol. 7(1), pages 577-617, August.
    8. Blomberg, S. Brock & Hess, Gregory D. & Orphanides, Athanasios, 2004. "The macroeconomic consequences of terrorism," Journal of Monetary Economics, Elsevier, vol. 51(5), pages 1007-1032, July.
    9. Luca Agnello & Ricardo M. Sousa, 2014. "The Determinants of the Volatility of Fiscal Policy Discretion," Fiscal Studies, Institute for Fiscal Studies, vol. 35, pages 91-115, March.
    10. Berkowitz, Daniel & Caner, Mehmet & Fang, Ying, 2012. "The validity of instruments revisited," Journal of Econometrics, Elsevier, vol. 166(2), pages 255-266.
    11. Edward Miguel & Shanker Satyanath & Ernest Sergenti, 2004. "Economic Shocks and Civil Conflict: An Instrumental Variables Approach," Journal of Political Economy, University of Chicago Press, vol. 112(4), pages 725-753, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Andrey A. Gnidchenko & Vladimir A. Salnikov, 2015. "Net Comparative Advantage Index: Overcoming the Drawbacks of the Existing Indices," HSE Working papers WP BRP 119/EC/2015, National Research University Higher School of Economics.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Urbain Thierry Yogo, 2016. "The Curse of Conflict: understanding the effect of terrorism on fiscal volatility," EconomiX Working Papers 2016-20, University of Paris Nanterre, EconomiX.
    2. Urbain Thierry Yogo, 2015. "Terrorism and Fiscal Policy Volatility in Developing Countries: Evidence from cross-country and Panel Data," CERDI Working papers halshs-01161601, HAL.
    3. Andersson, Jens, 2018. "Tax Stabilisation, Trade and Political Transitions in Francophone West Africa over 120 Years," African Economic History Working Paper 41/2018, African Economic History Network.
    4. Urbain Thierry Yogo, 2016. "The Curse of Conflict: understanding the effect of terrorism on fiscal volatility," Working Papers hal-04141590, HAL.
    5. Shiran Victoria Shen, 2021. "Integrating Political Science into Climate Modeling: An Example of Internalizing the Costs of Climate-Induced Violence in the Optimal Management of the Climate," Sustainability, MDPI, vol. 13(19), pages 1-24, September.
    6. Cemal Eren Arbatlı & Quamrul H. Ashraf & Oded Galor & Marc Klemp, 2020. "Diversity and Conflict," Econometrica, Econometric Society, vol. 88(2), pages 727-797, March.
    7. Janus, Thorsten & Riera-Crichton, Daniel, 2015. "Economic shocks, civil war and ethnicity," Journal of Development Economics, Elsevier, vol. 115(C), pages 32-44.
    8. Patrick Guillaumont, 2009. "An Economic Vulnerability Index: Its Design and Use for International Development Policy," Oxford Development Studies, Taylor & Francis Journals, vol. 37(3), pages 193-228.
    9. Luca Agnello & Ricardo M. Sousa, 2014. "The Determinants of the Volatility of Fiscal Policy Discretion," Fiscal Studies, Institute for Fiscal Studies, vol. 35, pages 91-115, March.
    10. Stoop, Nik & Verpoorten, Marijke & van der Windt, Peter, 2019. "Artisanal or industrial conflict minerals? Evidence from Eastern Congo," World Development, Elsevier, vol. 122(C), pages 660-674.
    11. Stergios Skaperdas, 2011. "The costs of organized violence: a review of the evidence," Economics of Governance, Springer, vol. 12(1), pages 1-23, March.
    12. Patrick Guillaumont, 2010. "Assessing the Economic Vulnerability of Small Island Developing States and the Least Developed Countries," Journal of Development Studies, Taylor & Francis Journals, vol. 46(5), pages 828-854.
    13. Ceren Baysan & Marshall Burke & Felipe González & Solomon Hsiang & Edward Miguel, 2018. "Economic and Non-Economic Factors in Violence: Evidence from Organized Crime, Suicides and Climate in Mexico," NBER Working Papers 24897, National Bureau of Economic Research, Inc.
    14. Ma, Yong & Lv, Lin, 2023. "Financial development, financial instability, and fiscal policy volatility: International evidence," The North American Journal of Economics and Finance, Elsevier, vol. 64(C).
    15. Brüeckner,Markus & Carneiro,Francisco Galrao, 2015. "The effects of volatility, fiscal policy cyclicality and financial development on growth : evidence for the Eastern Caribbean," Policy Research Working Paper Series 7507, The World Bank.
    16. Sébastien Mary & Kelsey Shaw & Sergio Gomez y Paloma, 2019. "Does the sectoral composition of growth affect child stunting reductions?," Development Policy Review, Overseas Development Institute, vol. 37(2), pages 225-244, March.
    17. Brückner, Markus & Gradstein, Mark, 2013. "Exogenous volatility and the size of government in developing countries," Journal of Development Economics, Elsevier, vol. 105(C), pages 254-266.
    18. Boxell, Levi, 2019. "Droughts, conflict, and the African slave trade," Journal of Comparative Economics, Elsevier, vol. 47(4), pages 774-791.
    19. Eoin McGuirk & Marshall Burke, 2020. "The Economic Origins of Conflict in Africa," Journal of Political Economy, University of Chicago Press, vol. 128(10), pages 3940-3997.
    20. Guy Abel & Michael Brottrager & Jesus Crespo Cuaresma & Raya Muttarak, 2018. "Climate, Conflict and Forced Migration," Department of Economics Working Papers wuwp272, Vienna University of Economics and Business, Department of Economics.

    More about this item

    Keywords

    fiscal policy; Terrorism; fiscal policy volatility;
    All these keywords.

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:wpaper:halshs-01161601. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.