The 14th-century historiographer and historian Abu Zayd ‘Abd al-Rahman ibn Khaldun was a brilliant scholar and thinker now viewed as a founder of modern historiography, sociology and economics. Living in one of human kind's most turbulent centuries, he observed at first hand, or participated in, such decisive events as the birth of new states, the disintegration of the Muslim Andalus and the advance of the Christian reconquest, the Hundred Years' War, the expansion of the Ottoman Empire, the decline of Byzantium and the epidemic of the Black Death. Considered by modern critics as the thinker that conceived and created a philosophy of history that was undoubtedly one of the greatests works ever created by a man of intelligence, so groundbreaking were his ideas, and so far ahead of his time, that his writings are taken as a lens through which to view not only his own time but the relations between Europe and the Muslim world in our own time as well.

The contributions of Ibn Khaldun to the development of economic thought have gone largely unnoticed in the academic realm of Western nations, this despite recent research focusing on Khaldun's magnum opus, The Muqaddimah. In this paper, we examine the similarities between The Muqaddimah and Adam Smith's Wealth of Nations, particularly as they discuss the benefits of a system of specialization and trade and the role of markets and price systems.

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.