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March 07, 2012, Wednesday

Religion and inequality

Economic inequality simply means income inequality, that is, the gap between the rich and the poor. According to Wikipedia, “wealth disparity comprises all disparities in the distribution of economic assets and income. The term typically refers to inequality among individuals and groups within a society, but can also refer to inequality among countries.”

The famous website also says that “the issue of economic inequality is related to the ideas of equity,” such as equality of outcome and equality of opportunity. Unlike most European countries as well as Japan, where historically priority has been given to the preservation of equality of outcome at the expense of equality of opportunity in capitalist, or let me say the American type of so-called pure market systems, the latter is preferred to the first one. Moreover, some countries try to prevent inequality through systemic solutions whereas in other countries extra-systemic factors such as religious solidarity and charity organizations are promoted.

Wikipedia's relevant section also says there are many reasons for economic inequality within societies. Among them are greater inequality in wages and salaries, discrepancies between skilled and less skilled people, labor market structure, adverse effect of globalization, technological change and associated rapid sector-based shifts, policy reforms, taxes, education, racism, gender, culture, development patterns, personal preference for work, leisure and risk and finally innate abilities.

Among many determinants of inequality, I would like to focus on the impact of religiosity and its relationship with distribution of income. My topics have been motivated by a recently published working paper from the Central Bank of Turkey. The title of that article is “Religion, Income Inequality, and the Size of the Government” (Working Paper No: 12/08, February 2012).

A search on Wikipedia regarding the subject also provides us with information on the role culture and religion is thought to play in creating inequality “by either encouraging or discouraging wealth-acquiring behavior and by providing a basis for discrimination.” The authors in this paper make special reference to the most recent findings arguing that “the relationship between religion and its socio-economic correlates has demonstrated that countries with higher levels of religiosity are characterized by higher levels of income inequality.” However, they question the nature of causality between these two factors in the sense that “on the one hand, a more unequal society may cause agents to feel less secure, both materially and spiritually, and this may lead them to turn to religion as a source of comfort, on the other side, religiosity may help individuals better cope with adverse life events, reducing their incentive to fight serious shortcomings such as income inequality, thereby allowing it to persist. Unlike the direction of causation, however, we expect more severe income inequalities in nations with higher levels of religiosity, whatever the reason behind it.”

It is well known that all of the world's major religions such as Islam, the authors of the paper say, “have in their teachings a linkage between charitable actions in this life and a personal condition in the afterlife and variations in belief in afterlife translate into differences in incentives for charitable giving.” The authors point out that recent studies provide empirical support for this argument. For instance, one of the most recent works shows that, “in the US, the religious are nearly 35 percent more likely than the non-religious to donate money and that they donate $1,400 more on average.”

Based upon this observation, it is expected that the role of religion in influencing people's mode of behavior and therefore attitude on giving has an important politico-economic implication. They argue, for instance, that “keeping all else equal, religious individuals would prefer to make their financial contributions to collective goods (such as financial assistance to the poor and needy (redistribution) and/or in the provision of various types of public goods and services) privately rather than through the state." Based upon this argument they propose the hypothesis that “when compared with secular individuals, religious individuals on average are likely to prefer lower levels of taxation and spending by the state. If policy outcomes reflect variation in citizen preferences, then we can also expect countries with higher levels of religiosity to have lower levels of government taxation and spending because religion and state welfare spending are substitute mechanisms for providing social insurance.”

Their study vindicates this hypothesis across countries. However, this important working paper does not make specific reference to the existing income inequalities in Turkey and it does not provide us with any concrete policy implications in the way of eradicating inequality caused by religiosity, either. We need, as they also note, more micro-level intensive studies across countries.