Terrorism, crime and public spending: Panel VAR evidence from europe

Within a panel VAR framework and utilizing generalized impulse response and forecast error variance decomposition analysis, we explore the dynamic effects of terrorism and crime on public order and safety spending across European countries during the period 1994–2006. Our findings show that a ‘shock’ in terrorism and/or in crime, significantly increases the subsequent trajectory of public order and safety spending. As a by-product, we find that public spending is ineffective in reducing observed crime or terrorism.