Revised Version Religion and the Shadow Economy

Abstract: Religion is increasingly acknowledged to be a cultural dimension which affects economic outcomes in different regards. This contribution focuses on the possible impact of religion’s different dimensions, the overall degree of religiosity, the specific impact of different religions, religious competition and the proximity between religion and the state, on the shadow economy. The empirical test matches the largest available cross-section on the size of the shadow economy with numerous religious indicators. General religiosity seems to increase the shadow economy. Moreover, robust differences emerge across religions. Furthermore, a closer proximity between state and religion is typical for smaller shadow economies. Acknowledgement: We thank Marie-Christin Scholl and Julius Vutz, both from the ZE