While the effect of terrorism on voting behavior has been extensively studied in recent years, we still know little about how political elites react to such deleterious events. On the one hand, external threats have been said to create incentives to cooperate across party lines, which can bring "politics-as-usual" to a standstill. On the other hand, terrorist violence can also open the door to a blame game to signal the incumbent’s inability to guarantee citizens' protection. As a result, terror attacks may have important political consequences in contexts where government
stability depends on agreements between different parties. We leverage the occurrence of terror attacks perpetrated by ETA in the Basque Country in Spain and use a difference-in-difference approach to analyze the effect of terrorism on the stability of local governments and the formation of coalitions in Basque municipalities. Our results contribute to our understanding of the choices that political parties make in the aftermath of terror attacks and have profound implications for the functioning of democracies subject to violent threats.