Throughout history, religious and political authorities have had a mysterious attraction to each other. Rulers have established state religions and adopted laws with religious origins, sometimes even claiming to have divine powers. We propose a political economy approach to theocracy, centered on the legitimizing relationship between religious and political authorities. Making standard assumptions about the motivations of these authorities, we identify the factors favoring the emergence of theocracy, such as the organization of the religion market, monotheism vs. polytheism, and strength of the ruler. We use two sets of data to test the implications of the model. We first use a unique data set that includes information on over three hundred polities that have been observed throughout history. The results provide strong empirical support for our arguments about why in some states religious and political authorities have maintained independence, while in others they have integrated into a single entity. To examine these issues in current societies, we use recently available cross-country data on the relationship between religious and political authorities.
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