to build on their own military force and governance mechanisms, could eventually backfire and facilitate secession. Anderson (2007) notes that the same factors that made federalism a necessity in Iraq could also make federalism a risk to its territorial integrity.<sup>9</sup> Interesting lessons on how transfers may affect conflicts can also be learned from the Arab Spring. In countries like Tunisia and the Arab Republic of Egypt, the failure of incumbents to effectively use redistributive policies led to abrupt regime changes (see Boucekkine et al, 2016). In others such as the Gulf monarchies<sup>10</sup> and Algeria, instead, rulers were able to scale up redistributive measures at the outset of the protests, and they managed to keep their grip on power. Notice that the large increases in transfers were accompanied by a surge in repression in the Gulf States, suggesting that successful incumbents may find these policies as complementary.

Overall, these observations suggest that transfers affect the likelihood of conflict in an ambiguous way. One may then wonder whether such an ambiguity is driven by differences in the size of transfers. To see whether this may be the case, we collected data for 86 countries for the period 1990-2011, and computed the predicted probabilities of conflict as a function of decentralization –our a proxy for transfers– from a logit regression while controlling for total public expenditures, oil rents as a share of GDP, per capita income and regional dummies.<sup>11</sup> Referring the reader to Appendix 2 for the regression table, our results are summarized in Figure 1, which portraits a non-monotonic relationship between the probability of conflict and transfers. In particular, increasing the share of transfers from 20 percent of total public expenditures to 40 percent increases the likelihood of conflict by half (from 1 to 1.5 percent). However, the likelihood of conflict starts decreasing with further decentralization, and becomes insignificant at about 50 percent. In other words while small transfers are correlated with an increase the probability of conflict, large transfers are correlated with a decrease in it. While these results apply to all countries, such a humpshaped relationship becomes more prominent when we focus on the oil-rich country group only (oil revenues above 1 percent of GDP). However, with a substantially reduced sample size, we also lose significance. The remaining of the paper will build upon such a stylized fact.

> 9See also Barkey (2009) and Voller (2013).

> 10Immediately after the events in Tunisia and Egypt, King Abdullah of the Kingdom of Saudi Arabia announced large-scale benefits especially for low and middle income citizens. These included salary increases, bonuses for public employees, and construction of low-income housing units. The strategy of buying off social peace was effective in minimizing the protests, and any remaining unrest was then cracked down easily. Other Gulf monarchies followed similar approaches. Kuwait increased public salaries by 115 percent while the Gulf Cooperation Council promised an additional $20 billion fund for investments in Bahrain and Oman.

> 11The selection of data reflects the availability of government expenditures and decentralization figures, which we use as a proxy for transfers in the absence of a good measure of natural resource transfers. More specifically, we use expenditure decentralization measured as the share of subnational governments in general government expenditures. Our measure of conflict is conflict onset from the UCDP/PRIO Armed Conflict Database. A complete description of the data is provided in Appendix 2.

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