The economics of donations and religion

The economics of donations and religion

Activities by Thai non-profit organisations account for 0.8% to 1% of GDP annually. The level is consistent, albeit on the low side, with the international range of 0.9% to 6%, according to a study by Nada Chansom from the National Institute of Development Administration (Nida).

To put things into better perspective, 0.3% of GDP (extremely low by world standards) in Thailand goes to research and development. Hence, non-profit activities are about three times as large.

Among nonprofit groups, religious establishments account for two-thirds of the total. Why do we give to charity? What does economic development mean for religious activities? And what do religious activities mean for the economy?

Economists have long had a strange obsession with explaining the causal effects of social phenomena by using economic measurement tools. This peculiar interest can be traced back to the founding father of economics, Adam Smith, whose views on religion continue to stir debate. But those who study the economics of religion and charitable giving are not attempting to judge behaviour. The literature assumes the behaviours are consistent with the preferences of those who participate. So the question that intrigues economists is why.

The joy of giving: We all donate money from time to time, whether from petty cash or in lump sums. Why do we do it? Yes, tax rebates matter. But Thais have been donating to temples and charities since long before tax codes were formalised. Hence, taxes do matter but only by lowering the net marginal cost of the gift.

James Andreoni, a renowned economist at the University of San Diego in California, says people get a “warm glow” from giving, but it definitely is not altruism. True altruism means the overall well-being of others is the giver’s only concern. Hence, the total sum donated will matter the most. The problem with this reasoning is that if the sum is already large — think of the Bill & Melinda Gates Foundation — then there would be no point for the giver to give any more. Taking this logic to its extreme, in a large economy no one would make charitable contributions except for the very biggest entities.

Let’s look at it in another way — if the government taxes you and gives the proceeds to charity, that should be equal to you giving the gift directly. Yet most people disagree that the two are the same. Hence, the predictions about pure altruism fall flat on their face when confronted with data. Gifts by others are no substitute for one’s own contributions. So paradoxically, we have a self-interest in contributing to the greater good.

Charitable giving is not stable but U-shaped in terms of income — the rich and the poor give more as a proportion of their incomes, although the poor tend to gravitate more towards religious causes, while the rich support other endeavours. Studies in the US also show givers are more responsive to economic improvement and giving more than to economic deterioration and giving less. Interestingly, religious donations tend not to be affected by economic cycles, whereas giving for other causes such as education and research follows economic ups and downs. But does religious giving matter in the bigger picture?

Religion and economic outcomes: Max Weber probably made the first observation that religion will affect economic outcomes by fostering a work ethic. Indeed, religion influences behaviour. Numerous studies have confirmed people who are more “religious” are less likely to engage in “deviant” acts such as suicide, divorce, drug and alcohol abuse and criminal activity. A high rate of religious participation is shown to increase mental and physical health, reduce stress and improve life satisfaction. But will these benefits be significant at aggregate levels?

Robert Barro of Harvard University asked precisely this question and more. Which economies are likely to be more religious? Does being religious affect economic growth? Do different ways of religious participation matter differently in terms of results? We elaborate on their results below.

Levels of income do determine how likely an economy is to be religious. The richer you are, the more secular you become. And having a state religion does not make people more religious in the sense of belief but makes them attend religious services more often. And yes, being religious with firm beliefs does have a positive and significant effect on the economy. Belief in an afterlife and concepts such as Hell tends to have a positive effect on economic growth through a better work ethic, whereas regular attendance at religious services tends to have the opposite effect. Hence, the Barro study concludes believing matters more for the economy than belonging. Then again, a separate study by MIT economist Jonathan Gruber finds religious attendance is easily substitutable with donations. So the debate is far from over.

To bring it all home, economists are now probing deeper into unchartered territory at the intersection between religion, society and economy. And the results are encouraging. Religion is not a thing of the past but remains very important in the present. Its role in instilling values and morality remains as important as ever.

An estimate from Ms Nada of Nida puts the value of Thailand’s religious system at 100-120 billion baht a year. The key question then is whether people who participate in religious activities absorb beliefs and values that keep society functioning well. Or are they there only for the sake of attendance or donations?


TMB Analytics is the economic analysis unit of TMB Bank. The views expressed are those of the authors and not of TMB. Behind the Numbers is co-authored by Benjarong Suwankiri and Warapong Wongwachara. They can be reached at: tmbanalytics@tmbbank.com

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