The Political Economy of Beliefs: Why Fiscal and Social Conservatives/Liberals Come Hand-in-Hand

Abstract

Religious groups with greater within-group charitable giving are more against the welfare state and more socially conservative. We propose and test a model where religious provision of social insurance explains why fiscal and social conservatism align and where church-state separation is key. We present new evidence that the alignment disappears with a state church and it reverses for members of a state church. The model further suggests a novel explanation for religious movements and why church-state separation arose in the U.S. but not in many European countries. Elites increase church-state separation to create a constituency for lower taxes, if religious voters exceed non-religious voters. Otherwise, elites prefer less church-state separation in order to curb the secular left. Multiple steady states arise where some countries sustain high church-state separation, high religiosity, and low welfare state, and vice versa. We document a causal link between church-state separation and fiscal and social conservatism using a time-series of U.S. Supreme Court decisions and instrumental variables estimates using random variation in U.S. Circuit Court decisions on church-state separation. The causal link is corroborated through differences-in-differences-in-differences analyses at the individual-level using a panel of Scandinavian voters followed before and after Sweden’s separation of church and state.