EVENTS

Date:	Thursday, November 10, 2005
Time:	9:30 AM -- 11:30 AM
Location:	Wohlstetter Conference Center, Twelfth Floor, AEI 1150 Seventeenth Street, N.W., Washington, D.C. 20036

November 2005

Religion and Economic Life

Religion plays an important role in the lives of many Americans, but up until now economists have done relatively little research on the implications of religiosity and its effect on economic outcomes. In an important series of new papers, MIT economist Jonathan Gruber has explored the factors that drive religious participation and the impact of that participation on levels of education, income, welfare participation, marriage, and divorce. Mr. Gruber presented his findings at a November 10 AEI conference, and Len Burman and Charles Murray responded.

Jonathan Gruber
Massachusetts Institute of Technology

With 95 percent of Americans believing in the existence of God and two-thirds of charitable donations channeled through religious organizations, the interplay between religion and economics appears instrumental in understanding the well-being of individuals. Gruber’s three papers go beyond the apparent correlation between religiosity and well-being by attempting to answer three main questions: First, can one find the direction of causality between religiosity and positive outcomes? Second, what determines how religious people are? Third, to what extent does government spending crowd out spending by religious organizations?

To answer the first question, Gruber recalls Adam Smith’s claim that one’s religious participation is affected by the number of neighbors sharing one’s religion. To test Smith’s claim, Gruber analyzes the outcomes of similar groups that live in different areas by using a “co-religionist density” variable, measuring the quantity of other ethnic groups that share one’s religion in one’s area (African-Americans and Hispanics are excluded from the study). Gruber finds that a 10 percent rise in co-religionist density leads to an 8.5 percent rise in religious attendance. He also finds that a 10 percent increase in co-religionist density leads to a 0.9 percent increase in income. Triangulating these two findings, Gruber suggests that increased religiosity leads to better outcomes. While Gruber cannot pinpoint the mechanism for his findings, he does suggest four possibilities: Religion offers benefits from spirituality. Religion acts as spiritual and financial insurance. Religion leads to higher social capital, which can be viewed as networking opportunities. And religious education can produce positive effects.

Loaded with public policy implications, Gruber’s next paper examines the determinants of religiosity. Specifically, he questions if giving and going to church are complements or substitutes. By measuring how religious contributions are influenced by tax subsidies, Gruber finds that for each percentage point the tax price of giving is decreased, religious giving increases by $2. Moreover, church attendance falls 9 percent for every 10 percent increase in church contributions. Gruber’s findings support the concept that giving and going are substitutes, which is consistent with economic theory that centers on the individual attempting to maximize after-life utility. From a public policy perspective, Gruber’s findings imply that subsidizing church donations may produce unfavorable consequences.

Gruber’s final paper analyzes the crowding out effect of government spending on church spending. He focuses on the New Deal, which decreased church spending by a third and increased government spending by ten times that of church spending. One may speculate that church spending decreased due to the Depression; however, church spending did not decrease until New Deal legislation was passed in 1933, not when the Depression began in 1929. Gruber finds that each dollar of New Deal spending reduced church spending by three cents. Relative to New Deal spending, a three-cent reduction is minor, but relative to church spending, three cents is quite large. Gruber concludes by stating that New Deal spending crowded out church spending, however, there is no evidence to suggest that in the absence of New Deal spending, church spending would have increased by New Deal proportions.

Charles Murray
AEI

Charles Murray begins by praising Gruber for his “exemplary papers.” Placing Gruber’s papers in the context of the evolving quantitative work in the social sciences, Murray emphasized the importance of investigating issues of common sense, such as crime, the family, and religion.

Additionally, Murray offers suggestions for future research dealing with the relationship between economics and religion. First, he cites Europe as a potential case study for analyzing the effects of a state subsidizing religion. Second, Murray believes more studies should focus on the New Deal. He poses two questions: What would trend lines look like if the New Deal had not taken place, and what was the role of fraternal organizations with insurance schemes and charitable activities during the New Deal era? Third, Murray suggests a study on the truth value associated with different religions. He believes the results would demonstrate a variance in truth value due to some religions providing a greater understanding of the role of humans within the universe. Murray cites his own work, which displays Christianity’s ability to stimulate human ingenuity, while Islam appears to obstruct creativity. Lastly, Murray notes that work in the social sciences is too focused on utility, which neglects the role of transcendent experiences.

Len Burman
Urban Institute

While Murray concentrated on future research projects, Burman’s analysis focused on the technicalities of Gruber’s present research and offered supplemental explanations for Gruber’s results. Analyzing Gruber’s first paper, Burman supports Gruber’s hypothesis that religion creates increased social capital (networking opportunities), and adds that the mechanism may be a function of discrimination. Burman also believes Gruber’s study would benefit by accounting for where individuals were born, instead of simply looking at where they presently live. From a technical perspective, Burman questions Gruber’s triangular approach. Instead of first analyzing the effect of density on religiosity and the effect of density on outcomes and then connecting the two, Burman prefers a straight instrumental variable approach that employs a proxy for religiosity.

From Gruber’s second paper, Burman analyzes Bush’s tax cuts in light of the theory that giving and going to church are supplements. He notices that if taxes decrease, the price of giving increases, resulting in more churchgoing, which in turn creates more Republicans, facilitating more tax cuts. Burman augments Gurber’s substitution hypothesis by postulating two theories. First, increased religious density could lower the transaction costs of going to church, generating more attendance from less devout followers. With lower transaction costs, the marginal participant would be less committed to the enterprise of the church and might view giving as a viable substitute. Second, if one works more, one has less time to go to church. Thus giving could simply be an attempt to assuage one’s guilt from a lack of physical participation.

Shifting to Gruber’s third paper, Burman is wary of the paper’s empirical methods. Burman notes that Gruber’s cross-state analysis may not be indicative of the overtime variance in government spending. Moreover, allocation of church dollars may be centralized to the point where scarce dollars are dispersed in states receiving fewer services from the government. Burman believes asking church leaders how federal allocations influence church allocations would nicely complement Gruber’s empirical studies.

AEI intern Benjamin Hamlin prepared this summary.