Research Highlights Article
September 24, 2025
Tax breaks and the composition of religious markets
The effect of tax exemptions on Brazil's religious and political landscape.
Source: Seanmarkwei, CC BY-SA 4.0
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Tax breaks for religious organizations are common throughout the world and are critical to the financial sustainability of many churches. But these seemingly neutral policies can have unintended consequences that reshape religious markets and political systems.
In a paper in the 蝌蚪网 Journal: Microeconomics, authors and show how Brazil's generous tax exemptions for churches inadvertently accelerated the decline of Catholic dominance, while fueling growth among evangelical denominations.
"Tax exemptions granted to churches are pretty widespread and often even automatic," Corbi told the 蝌蚪网 in an interview. "But they are rarely evaluated in terms of their economic or institutional consequences."
Brazil provides a compelling case study, according to Corbi. The country experienced a dramatic religious transformation in recent decades, shifting from overwhelming Catholic dominance to a much more diverse landscape in which evangelical churches have gained substantial market share. Some projections suggest that the number of Evangelicals could reach 40 percent of Brazil's population by 2032, exceeding the proportion of Catholics.
Rather than simply documenting correlations, the researchers built what they call a "dynamic entry–exit model of religious competition.” They analyzed data from the Brazilian Internal Revenue Service covering all registered religious organizations from 1992 to 2018, focusing on 246 isolated municipalities to ensure clear market boundaries.
Brazil's religious market
The chart below shows market shares and the number of temples of different denominations in a sample of Brazilian municipalities from 1992 to 2018.
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The model treats churches like competing firms, each facing decisions about where to enter new markets based on entry costs, ongoing operating expenses, and competition from existing churches. By tracking actual temple openings and closures over nearly three decades, the researchers were able to estimate these cost parameters for different denominations and then simulate counterfactual scenarios asking what would have happened if churches faced different tax rates.
The model showed that tax rate reductions generally lead to increased entry for all churches. But it also uncovered a striking asymmetry in how Catholic and evangelical churches operate.
"It seemed obvious after we found it, but it was not before," Corbi notes. Evangelical churches typically expand by renting simple buildings with basic furnishings, resulting in low entry costs but higher ongoing expenses. Catholic churches, by contrast, build their own temples, often with sophisticated architecture and artwork, requiring substantial up-front investments but lower operational costs. Because Brazil's tax exemption policy primarily affects ongoing operational expenses, this asymmetric cost structure leads to a disproportionate tax benefit for evangelical churches.
The researchers estimate that removing tax exemptions and imposing a 30 percent tax rate—close to the typical corporate tax rate—would have reduced the evangelical share of temples by approximately 20 percentage points. In this scenario, some evangelical denominations would have had an average market share very close to zero under the higher tax rates, indicating that such a tax could limit the number of religious choices available.
Policies are supposed to be religion-blind. The state should not give advantage to one denomination over another. But it looks like these policies are unintentionally privileging certain denominations over others.
Raphael Corbi
The effect of the tax policy extends beyond religious markets and into politics. Brazil's evangelical parliamentary caucus grew from 27 members in 1994 to 187 in 2018. Using election data, the researchers found that when evangelical churches opened, the vote share for evangelical political candidates increased by about 5 percentage points in subsequent elections compared to similar municipalities without an evangelical church opening.
The findings raise important questions about the relationship between tax policy and religious freedom. "Policies are supposed to be religion-blind," Corbi said. "The state should not give advantage to one denomination over another. But it looks like these policies are unintentionally privileging certain denominations over others."
The authors’ work demonstrates how economic tools can illuminate the unintended consequences of seemingly neutral policies. As religious organizations continue to play significant roles in politics worldwide, these dynamics could become increasingly important for policymakers to understand.
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“Church Tax Exemption and Structure of Religious Markets: A Dynamic Structural Analysis” appears in the August 2025 issue of the 蝌蚪网 Journal: Microeconomics.