Religion and economics: Joined at the hip

What’s the value addition by temples? This is not a frivolous question. Varanasi alone gets over 20 crore visitors annually. Tirupati gets around 100,000 devotees per day. And so on. A lot of money gets spent by these devotees.

Religious places like the Vatican or Lourdes etc also generate large revenues. It’s a well-known global phenomenon driven by the demand for solace on the one hand, and its supply on the other.

Value addition happens when you take a piece of wood and turn it into a spoon. The difference in the cost of the wood and the price of the spoon is the value addition. It’s on this difference that the GST is levied.

So from a purely economics point of view, if governments wanted to tax them because they generate so much money, what’s the value addition by places of worship? Or, what do they convert into what?

Economics has no answers because of the problem of interpersonal comparisons of utility. There simply can’t be a standard measure of what different people get from visiting a place of worship. The input is intangible, as is the benefit.

So if faith can’t be taxed, the rate at which it could be taxed is also ruled out. Religion is tax free.

This is an important reason why Hindu temples in India are under government control. It’s not just a mere percentage of the revenue that a government gets. It gets all of it. And of course there’s whatever it gets by taxing the ancillary activities, which are purely commercial.

Economics research

That said, there’s been a lot of research by economists on religion and economics. One of the most important papers was published in 2003 by Robert Barro and Rachel McLeary.

They used an international survey on religiosity to see what effect it has on economic growth. To cut a long story short they found “that economic growth responds positively to the extent of religious beliefs… that is, growth depends on the extent of believing relative to belonging.”

They further wrote that “beliefs are the principal output of the religion sector, and church attendance measures the inputs to this sector. Hence, for given beliefs, more church attendance signifies more resources used up by the religion sector.”

But, at the same time, religion regulates individual behaviour, and that helps increase cooperation and economic growth. The alternative is China type cooperation forced by a coercive state.

A more recent investigation was by Shriya Iyer who wrote a book called The Economics of Religion in India in 2018. It took her 10 years of research and data from hundreds of religious institutions.

Her main finding was that after the Indian government reduced spending on social welfare after the 1991 reforms that emphasised fiscal discipline, religious institutions stepped in and compensated for it in a very large measure.

Another finding was that because growth increased inequality, it also led to more religious violence because politicians started exploiting the discontent. But this isn’t very convincing.

I found yet another interesting paper. It’s by Rohit Ticku, Anand Shrivastava and Sriya Iyer. It’s called “Economic Shocks and Religious Conflict in Medieval India”. They say that the Mughals tended to destroy temples during droughts. Makes sense.

You should read this paper and all the others on economics and religion. They seem to be joined at the hip. And if that’s the case, obviously so are politics and religion.

State religions

What about state religions? The most recent paper on this is by Antonis Adam and Sofia Tsarisitadalidou. It was uploaded in 2023.

Their analysis shows that countries with state religions have lower fiscal capacity because they rely on revenue from places of worship. It’s an exhaustive paper that you can read on a slow day.

There is, of course, a difference between a state religion and a theocracy. A state can endorse a religion unofficially without including it in formal constitutional arrangements.

Most countries inhabited by white majority populations do this. That way they can pretend to be secular politically but not sociologically. It’s a win-win.

With a few notable exceptions, Islamic countries have adopted the opposite practice. They are formally religious states and make no pretence to being secular. Their economies in most cases are doing very well.

East Asian countries are different. They don’t have state religions. And they are doing the best economically, regardless of their political system.

This is something worth thinking about. It’s probably best if the State ignores religions even as the country’s political parties endorse them.

India fits this prescription well. It should continue to follow this model.

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