Ibn Khaldun's theory of taxation has been considered one of his most important contributions to economic thought. In the Muqaddimah, he relates the theory of taxation with the government expenditure and argued for low tax rate so that incentive to work is not killed and taxes are paid happily. According to him, at the beginning of a dynasty, taxation yields a large revenue from small assessment, but at the end of a dynasty, taxation yields a small revenue from large assessment. The effect of taxation on incentives and productivity is so clearly visualized by Ibn Khaldun that he seems to have grasped the concept of optimum taxation. He also analyzed the effect of government expenditure on the economy. He advocates a policy of wise and productive public expenditure. By these economic insights, Ibn Khaldun has been considered as the forerunner of modern recommendations that high tax rates shrink the tax base because they reduce the economic activity. The present paper aims at an analytical study of this theory by presenting empirical evidence that may support and strengthen the Khaldunian theory of taxation and examines its practicality and relevance today.
Ibn Khaldun’s Theory of Taxation and its Relevance Today
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Figure 1: Sarajevo skyline. (Source: http://www.skyscrapercity.com/showthread.php?t=597483&page=66).
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