Religion and Institutional Quality: Long-Term Effects of the Financial Systems in Protestantism and Islam

Abstract

Religion is one of the most commonly cited explanations for cross-country variation in institutional quality. In particular, Protestantism, and the cultural values that follow from its doctrine, has been identified as particularly beneficial. Nevertheless, micro-level studies provide little evidence for religion producing norms and values conducive to good institutions. We propose an alternate explanation for the observed macro-level variation: historical systems for local religious financing, contrasting the medieval parish system in Northwestern Europe, where members collectively paid for and administrated religious services as public goods, with the Ottoman Empire, where such goods were normally provided through endowments from private individuals and tax collection was comparatively privatized. We argue that a legacy of collective financing and accountability in the former region created a virtuous cycle of high state capacity and low corruption, reverberating to this day as good institutions.