State and religion

State and religion have historically had an uneasy relationship, at times being close allies, at others harsh adversaries, and at still others largely independent. This paper develops an economic model of this relationship, where the state's objective is to maximize net tax revenue. Religious goods benefit the state in two ways: first, they provide utility to citizens, thus allowing the state to extract more taxes before running up against citizens' reservation utility (the point at which they would revolt), and second, they potentially provide legitimacy to the state, thereby lowering the costs of tax collection. If the latter effect is strong enough, the state may find it optimal to take control of religion, either to enhance its legitimizing effect, or to suppress its de-legitimizing effect. Greater competition in the religion market and democratic polity make it less likely for the state to control religion. To evaluate the model's implications, we use recent cross-country data on the relationship between religion and state, including variables from the "Religion and State Project" and measures coded from the 2001, 2003, and 2005 International Religious Freedom reports. We also examine in more detail some of the paradigmatic cases indicated by the model, presenting various types of evidence from current and historical examples of each case.