Abstract
In the last generations most of the Western world has faced rapid secularization combined with large expansions in the welfare state. At the same time, many other countries have maintained high levels of religiosity and a more limited role for the state. I propose a model of intergenerational transmission of religious values and competition between the state and the church that shows how an increase in state efficiency can trigger this process of secularization and rise of the welfare state. At the same time, I show that this initial increase in state efficiency can be hard to attain. Due to the competition between the church and the state, agents may have incentives to sabotage the efficiency of the state, preventing the start of the secularization process. Finally, I provide empirical evidence in line with this model and show that consistent empirical results are only present when focusing on areas of the state that are in direct competition with the church.
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