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

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.

Research highlights▶ Game theoretic model of the relationship between terrorism and anti-terror spending. ▶ Non-linear relation between terrorism and counter-terrorism spending. ▶ Empirical Markov-switching model with UK data provides evidence in favor of this approach. ▶ Probability of transiting into a state with high terror is smaller if defense spending is high.