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

Abstract

Religious provision of social insurance may explain why fiscal and social conservatism align in the times and places that they do. We find evidence that religious groups with greater within-group charitable giving are more against the welfare state and more socially conservative. The alignment disappears when there is a state church and it reverses for members of a state church (social conservatives become fiscal liberals). This reversal is unlikely to be due to omitted variables: In two quasi-experiments, increases in church-state separation precede increases in the alignment between fiscal and social conservatism. We construct a model where elites increase church-state separation to create a constituency for lower taxes if religious voters exceed non-religious voters. Welfare state crowds out religious participation, leading to multiple steady states where some countries sustain high church-state separation, high religiosity, and low welfare state, and vice versa. This framework helps shed light on the changing nature of religious movements and the dynamic links between credit market access, church-state separation, and fundamentalism.JEL classification: D31, D71, D72, D78, I38, Z12

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