Decentralization as a disincentive for transnational terror? System stability versus government efficiency: an empirical test

Using panel data for a maximum of 109 countries over the years 1976-2000, we empirically analyze the impact of decentralization on the occurrence of transnational terror. Our results show that expenditure decentralization robustly reduces the number of terror events in a country, while political decentralization has no impact. The effects of decentralization do not transmit through government efficiency and effectiveness, in line with the system stability hypothesis of Frey and Luechinger (2004).