The effect of church tax on church membership

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. Responsible editor: Junsen Zhang Electronic supplementary material The online version of this article (doi:10.1007/s00148-012-0431-y) contains supplementary material, which is available to authorized users. T. Lyytikäinen Government Institute for Economic Research (VATT), 00100 Helsinki, Finland T. Lyytikäinen Spatial Economics Research Centre, London School of Economics, London, United Kingdom T. Santavirta (B) Swedish Institute for Social Research (SOFI), Stockholm University, 106 91 Stockholm, Sweden e-mail: [email protected] 1176 T. Lyytikäinen, T. Santavirta