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The use of violence by non-state groups against civilian targets in other states reaches back as far as they existence of states themselves. One of the central questions addressed by much of this research is the impact of democratic political institutions on the incidence of terrorist activity. Some scholars have argued that democracy incites terrorism, while others have touted democracy as an antidote to terror. Our ability to answer this question has been significantly hindered by problems of research design that have often prevented scholars from explicitly identifying and comparing the various–and sometimes contradictory-causal pathways by which democratic political institutions might increase or decrease the incidence of terrorism. Building upon recent innovations in the analysis of multilateral international behavior (Poast 2010), we develop an empirical framework that allows us to model the flows of terrorist activity from terrorist bases in multiple states toward targets in other states. Our analysis of transnational terrorist incidents from 1968-2007 indicates that democracy has sharply differing effects on the flow of terrorism depending on whether one considers the target or base states. On the one hand, democratic institutions within the target state sharply increase the risk of a terrorist attack. We show that this effect is due to the competitiveness of the political system rather than the level of civil rights or constraints on the chief executive. On the other hand, democracy within the potential base states reduces the risk of terrorism because of the ability of the political system to accommodate grievances in a non-violent manner.