The effect of church tax on church membership
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In this study, we examine the effect of church tax on the church membership decision using Finnish data. We present both descriptive statistics from an opting-out website and econometric evidence exploiting the panel structure of a large individual-level data set. Our descriptive analysis shows that opting out is concentrated towards the last days of the year, i.e., the last chance to avoid paying church tax for the entire coming year. Our econometric evidence suggests that the average effect of tax incentives for the whole population is both statistically and economically significant. A 1 standard deviation increase in church tax leads to between 0.5 and 1 percentage point decline in the likelihood of church membership. In addition, we find that church membership dropped substantially when a law change made opting out significantly easier. This finding suggests that transaction costs play an important role in the membership decision.
KeywordsChurch tax Church membership Transaction cost
JEL ClassificationH24 H31 Z12
We thank Saku Aura, Pierre-André Chiappori, Kristiina Huttunen, Pekka Ilmakunnas, Mikael Lindahl, Daniele Paserman, Tuomas Pekkarinen, Otto Toivanen, Roope Uusitalo, and the seminar participants for their helpful comments. We are also indebted to Jori Mäntysalo and his colleagues at Free Thinkers’ Union of Finland for their generous data provision and assistance. Lyytikäinen gratefully acknowledges financial support from the Yrjö Jahnsson Foundation. Santavirta gratefully acknowledges financial support from the Yrjö Jahnsson Foundation and Eemil Aaltonen Foundation.
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