Are Opt-Out Systems Regressive? Evidence from the Church Tax

Opt-out systems may be regressive if the private returns to participation are limited and low-income households are more likely to face behavioral frictions. I investigate this hypothesis using the Swedish church tax. Between 1952 and 1996, the Swedish church tax was constructed as an opt-out system, reflecting a political compromise between the ``folk church'' concept and growing pressures to protect the freedom of religion. Under the opt-out scheme, citizens were enrolled in the church at birth but were free to leave. Comparing children born just before and after the system's discontinuation, I find that default memberships significantly increase membership rates later in life, implying a tax revenue effect of 8.2 percent. The default effects are significant across the population but are especially strong among individuals born in low-income households. I find no evidence that default memberships increase religious transmission to the next generation or the probability of joining or leaving other religious organizations. The combined results indicate that the folk church concept, rather than crowding out other religions, primarily served to raise tax revenues from non-participating low-income households