Religious Subsidies and the Rise of Evangelicalism: a Dynamic Structural Analysis Raphael Corbi∗ Fabio Miessi Sanchesy May 15, 2021 Abstract This paper examines how state subsidies affect the structure of religious markets. Us- ing the Brazilian experience as a showcase, we study how tax exemption for all religions altered the distribution of market shares among the Catholic and Evangelical churches. We build and estimate a dynamic game of church entry using administrative temple entry/exit data across Brazilian municipalities for 1991-2018 and simulate the effects of profit taxes on market shares. The share of the Catholic church would have been 22 percentage points larger if the government had imposed on all churches a tax rate of 30% of profits { close to the standard tax rate in Brazil. Evangelicals gained more as subsidies on variable payoffs tend to asymmetrically benefit smaller churches, and not because the technology they adopted to build and operate temples is more efficient than the one adopted by the Catholics. We also build a Laffer curve with endogenous market structure and show that it peaks at 68% indicating that the optimal tax rate in this market is relatively high. We discuss how technologies adopted by different churches affect the Laffer curve and therefore government tax revenues in this market. Keywords: Religion, Tax, Dynamic Oligopoly, Dynamic Game Estimation. JEL Codes: Z12, D72, H25, C57, L66. ∗Departament of Economics, University of S~aoPaulo, Brazil. E-mail:
[email protected] yInsper, Brazil. E-mail:
[email protected] We thank Tiago Ferraz for excellent research assistance. For valuable comments and suggestions we thank Nathan Canen, Francisco Costa, Renata Narita, Lucas Novaes, Rodrigo Soares, Sorawoot Srisuma and Felipe Valencia Caicedo.