Abstract

Religion is increasingly acknowledged to be a cultural dimension which affects economic outcomes in different regards. This contribution focuses on religion's possible impact on the size of the shadow economy. In this paper we try to focus on the Religion and Economy. The paper covers the following points that are related with the religions as an economic institution. The paper also discussed and highlights the religion as a shaper of economic attitudes and behavior. Finally paper concludes with the opinions of the different religions about the economy.

Religion and Economy

Introduction

Religion is increasingly acknowledged to be a cultural dimension which affects economic outcomes in different regards. This contribution focuses on religion's possible impact on the size of the shadow economy. Different dimensions of the religious markets are taken into account. These dimensions refer to the overall degree of religiosity, the specific impact of different religions, religious competition or the proximity between religion and the state. For example, we would expect that the shadow economy is smaller in religious countries and in countries with a close link between religion and the state. The former is to be expected because the ethical teaching of religions imposes additional non-pecuniary costs on believers performing unlawful informal transactions. And the latter should hold because religion as an ally of the secular state should have self-interest to defend the secular partner's financial basis.

Discussion

The empirical test makes use of the largest available country cross-section on the size of the shadow economy and matches this dataset with numerous religious indicators. The starting point is a baseline specification with standard economic determinants of shadow activities which then is augmented by religious indicators. We complement the analysis by a battery of robustness checks. Overall, our findings support the view that religion influences the level of informal transactions, albeit with several qualifications. The analysis did not support the view that countries with religious citizens have smaller shadow economies per se. However, there is a significant divergence across main religions: Countries dominated by Islam or Eastern religions are associated with smaller shadow economies compared to Christian countries for comparable levels of economic development and government effectiveness.

This result holds independently whether religiosity is measured by membership in a religious community, attendance of services or religious education, albeit with substantial heterogeneity across different religions and confessions. While the link between religion and (tax) ethics is an important first dimension of potential relevance for the shadow economy, the overall link is more complex.

Tax evasion and shadow economic activities have a certain overlap, but the latter are also driven important factors beyond taxation such as the flight from regulation or corruption. Apart from that, religion has an impact beyond morale. Even with a comparable level of religiosity across countries, structural differences of religious markets may influence the informal sector. Religions differ with respect to their precise ethical messages and have a different degree of flexibility vis-à-vis secular laws. National conditions differ as to the closeness between religion and state. With a close alliance between both, it is more ...