Is it the rags or the riches? The impact of income on domestic terrorism

Abstract

Despite the popular rhetoric around poverty being the root cause of terrorism and the resulting alliance between the war on terror and the war on poverty, the literature remains divided on this issue. From finding either a positive or a negative association between income and terrorism as well as a lack of any association between the two, the literature now stresses the non-linear association between income and terrorism. The present study begins by theoretically formalizing the nonlinear relationship between income and domestic terrorism by considering the profit maximization of a representative agent. Next, using a novel instrument of natural disasters in related countries to isolate causality, I show that empirical evidence indeed supports a nonlinear relationship between income and terrorism. Further, with the bias-corrected estimates, the concavity of the relationship decreases keeping the impact of income on terrorism decreasing but positive throughout the observable income levels in the sample.