In general lines, terror endangers life such that the value of the future relative to the present is reduced. Hence, due to a rise in terror activity, investment diminishes and in the long run income and consumption go down as well. This is, in a capsule, the experience of the countries where terror and its derivatives were the least aimed at: Islam.

To counter the negative effects of terrorism, Islamic Governments such as those of Saudi Arabia and Egypt have tried to offset terror by putting tax revenues into the production of security. Facing a rising tide in terror, so was the idea, a government that acts optimally increases the proportion of output spent on defense. Thus, when terror peaks, given the scarcity of available economic resources, the long run equilibrium is of lower output and diminished welfare. Which, as many Muslim countries have discovered later on, results in a drop of aggregate demand and a general economic slow down as well.

European Union members, on the other hand, have and are experiencing the economic impact of terror in a different fashion. Here too, as the massacres in Madrid and London have demonstrated, terror, among other things, endangers civilians