Turns terrorism but the plan solves

Terrorism may produce substantial social and economic costs for affected countries not only by destroying lives and property but also by, e.g., reducing investment activity (e.g., Crain and Crain, 2006; Abadie and Gardeazabal, 2008) and trade (e.g., Nitsch and Schumacher, 2004) as well as influencing financial markets (e.g., Melnick and Eldor, 2010) and government spending (e.g., Gupta et al., 2004) in ways that impair economic activity. Consequently, terrorism and the associated political instability may be harmful to economic growth (Alesina and Perotti, 1996; Gupta et al., 2004; Crain and Crain, 2006; Sandler and Enders, 2008). To reduce terrorism and with it its socio-economic costs, it is necessary to understand in which social conditions terrorism is rooted. Here, influential voices have repeatedly related income inequality to the emergence of terrorism and violence. For instance, in 2013 Pope Francis stated that “until exclusion and inequality in society and between peoples are reversed, it will be impossible to eliminate violence […].”1 In light of this discussion we study the effect of income inequality on terrorism. We contribute to the sparse literature on the nexus between inequality and terrorism in several ways, providing—to the best of our knowledge—the first comprehensive study of the inequality terrorism nexus. First, previous empirical analyses studying the political and economic consequences of inequality have been criticized on grounds of using inequality data of poor quality (e.g., Easterly, 2007). To overcome this issue, we use more consistent income inequality data drawn from a recently published income inequality dataset developed by Solt (2009), the Standardized World Income Inequality Database. Second, we consider the role of endogeneity in the inequality-terrorism nexus, where endogeneity may stem from simultaneity due to the distributional consequences of terrorism. Third, we provide both an in-depth theoretical discussion and empirical analysis of the transmission channels from income inequality to terrorism. This ought to strengthen our understanding of how the inequality-terrorism nexus actually works. Finally, we analyze how redistribution (i.e., the reduction of income inequality through taxation and other policies) affects terrorism. Here, we add to a small body of recent research (Burgoon, 2006; Krieger and Meierrieks, 2010) emphasizing the beneficial role of functioning social welfare systems in reducing terrorism. 1 See http://tinyurl.com/qclzcn6. 3 To preview our empirical findings, for a sample of 114 countries for the 1985-2012 period we indeed show that higher levels of income inequality result in more terrorist activity. This effect is also quantitatively substantive and holds when endogeneity is accounted for. Our main finding of a terror-augmenting effect of income inequality is also robust to various methodological changes (different dependent variables, different estimation methods etc.). With respect to the transmission channels from inequality to terrorism, our analysis suggests that income inequality may especially promote terrorism by directly fueling social frustration due to relative deprivation and, indirectly, by contributing to the erosion of institutions, e.g., by undermining the rule of law. Finally, we show that redistribution (i.e., a reduction of income inequality) is associated with less terrorism. Our empirical analysis thus suggests that policymakers ought to take seriously the inflammatory effects of inequality, but may be able to counter them through tax and welfare policies geared towards greater redistribution and income equality.