Ibn Khaldun’s Theory of Taxation and its Relevance Today

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.

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Abdul Azim Islahi*

Table of Contents

  1. Introduction
  2. Life sketch
  3. The Muqaddima
  4. Economics of Ibn Khaldun
  5. Justification for taxes
  6. The tax as the main component of public finance
  7. Importance of taxes comes from the importance of government expenditures
  8. A Government must avoid extravagance and extreme luxuries.
  9. His theory of taxation
  10. How oppressive duties cause a decline of revenue
  11. Tax rate vs. tax revenue
  12. Principles of taxation
  13. Consequences of injustice and discrimination in tax imposition
  14. Ibn Khaldun - a forerunner of supply-side economics
    14.1. Empirical evidences from the United States' economy
    14.2. The Indian experience
  15. Criticism on the policy of tax cuts
  16. Concluding remarks
  17. References

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Note of the editor

This article was presented to the Conference Encuentro internacional sobre tradición y modernidad en el pensamiento económico árabe-musulmán: La contribución de Ibn Jaldún organised in Madrid in 3-5 November 2006 by The Islamic Research and Training Institute, a member of the Islamic Development Bank Group, in collaboration with Universidad Nacional de Educacion a Distance (UNED) of Spain, and Islamic Cultural Centre of Madrid: See the published version of the article. We thank Dr Abdul Azim Islahi for his permission to republish a slightly revised version of the article. The illustrations were added by the editorial board of www.MuslimHeritage.com.

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image alt textFigure 1: The imaginary portrait of Ibn Khaldun in a Tunisian 10 Dinar banknote. (Source).

1. Introduction

Ibn Khaldun's theory of taxation has been considered an original and one of his most important contributions to economic thought. It is his theory of taxation that has cemented his position in the history of economics. The present paper has a limited scope. It aims at an analytical study of this theory. It is only one aspect of Ibn Khaldun's host of economic ideas. It also attempts to present empirical evidence that may support and strengthen his theory of taxation. Finally the paper examines its practicality and relevance today. But at the outset, as a background knowledge, it briefly presents Ibn Khaldun's life sketch, introduces his most outstanding work the Muqaddimah and the economic ideas found in this work. Since Ibn Khaldun's discussion of taxation is mixed with his discussion of expenditures of government at various stages, and they provide justification for taxation, this aspect has also been dealt with before taxation.

Ibn Khaldun does not discuss public finance in conventional way. This he leaves for works dealing with the government rules (al-ahkam al-sultaniyah). His focus of attention is taxation. He relates it with the government expenditure. Ibn Khaldun argued for low tax rate so that incentive to work is not killed and taxes are paid happily. According to him, when government is honest and people-friendly, as it happens to be at the beginning of a dynasty, "taxation yields a large revenue from small assessment. 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. He has rightly been considered as the forerunner of the famous American economist Arthur Laffer, whose proposition adds that high tax rates shrink the tax base because they reduce the economic activity. Ibn Khaldun's ideas are ‘comparable with those of supply-side economics that emphasized incentives and tax cuts as a means of economic growth. This was the dominant theme during the 1980s. Thus, Ibn Khaldun's ideas on taxation and government expenditure bear empirical evidence and have great relevance today.

2. Life sketch

Figure 2: View of Tunis where Ibn Khaldun was born in 1332 in Civitates orbis terrarum, the world atlas of cities edited by the German geographer Georg Braun (1541-1622) (vol. 2 published in 1574). The atlas contains 546 prospects and maps of cities from all around the world. The image of Tunis is a bird's eye view looking down from the north, with the city, its waterways and fortifications clearly laid out below. The image shows the siege of Tunis by the Turks in 1574., which ended with the Spanish forced out of Tunis, which then became a Turkish regency. (Source).

Abu Zayd Abd al-Rahman Ibn Khaldun (732-808/1332-1406), historian, statesman and social philosopher was born in Tunis where he was well brought up and received the best education, both religious and secular. He died in Egypt where he had settled down during the last years of his life. He was a descendant of a well to do Andalusian family that left Spain before its fall to Christians. His ancestry according to him originated from Hadramut, Yemen.

Ibn Khaldun lived during a period of turmoil and stagnation. To him it was not a ‘habitual or normal' situation, but as a phase of decline interrupted by vain attempts of revival. He studied this period of ossification punctured by intermittent crises (Lacoste 1984, p. 5). Rulers lost spirit of the religion, stability was replaced by anarchy; luxurious style of life did away with the simple living, and to stay in power with all these symbols of decadence, excessive taxation was imposed which acted as a powerful disincentive for undertaking economic activities. Arbitrary appropriation of people's property by the government resulted in slackening in enterprises. Trading houses owned by rulers weakened the competitive spirit of commoners.

Ibn Khaldun played a pivotal role in the politics of North Africa and Spain. He saw rise and fall of various governments, and enjoyed company of a number of rulers. He served them in various capacities – teacher, advisor, minister, ambassador, and judge. His turbulent career as a court official and statesman successively in the service of various rulers in North-Africa and Spain, in courts, in prison and sometimes in Bedouin encampments, his ambassadorial mission to Pedro the cruel, the King of Castile, his emigration in 1382 to Egypt where he held high judiciary and teaching positions during several periods and was out of official grace during others, his loss of family, friends and assets, his meeting with Tamerlane as an ambassador of Egyptian ruler, all these ups and downs enriched him with great experience in his life that helped him write his famous history and the most famous Muqaddimah – an introduction to his history. In the opinion of Spengler (1964, p. 304), "Ibn Khaldun must have acquired much of his quite solid understanding of economic behavior through his legal and administrative experience and through his contact with the pool of unwritten administrative knowledge." The French scholar Lacoste (1984, p.194) considers him "like a jewel in the midst of medieval Muslim culture."

3. The Muqaddima

image alt textFigure 3: Two pages from the reprint in 3 volumes of the Paris 1858 edition of the Muqaddimah by the French Orientalist Etienne-Marc Quatreme`re: Muqaddimat Ibn Khaldūn wa-hiya al-juz' al-awwal min Kitāb al-'Ibar wa-dīwān al-mubtadā' wa-al-khabar [The Muqaddimah of Ibn Khaldūn which is volume one of the his World history], bi-tahqīq A. M. Kātirmīr (Beirut: Maktabat Lubnān, 1992). (Source).

Ibn Khaldun has been ‘duly recognized by non-arabists as well as by arabists as one of the truly great and original scholars' (Rabi' 1967, p. 4). His work Kitab al-‘Ibar is of unrivalled value as a source of reference to the history of Arab and non-Arab nations until his time. His brilliant work ‘Al-Muqaddimah', conceived of as a theoretical introduction to his long book of history Al-'ibar, considered the most sublime and intellectual achievement of the Middle Ages, is a treasury of many sciences like history, psychology, sociology, geography, economics, political sciences, etc. It is, in the words of one eminent 20th century historian, "the greatest work of its kind that has ever been created by any mind in any time or place." (Toynbee 1935, p.322).

Ibn Khaldun was an eye witness to historical events. In many cases, he himself instigated historical events and altered their course. According to Charles Issawi (1950, p. ix), "the practical knowledge he gained in his political career led [Ibn] Khaldun to devise a path-breaking theory of history, in which the rise and fall of political dynasties depend on laws of social and economic change." The prime object of Ibn Khaldun's enquiries is a concrete social organization, a structured whole whose major determinants are the economy, politics and culture.

In addition to his personal experiences and insights, Ibn Khaldun also benefited from the cultural and intellectual inheritance of past scholars. "Ibn Khaldun, while profiting from their [other Muslim thinkers'] philosophical speculations, greatly surpassed them in his understanding of economic in nature, is rather loosely stated, in part because it was inferred from what had supposedly taken place in the five or six centuries preceding his time." (Spengler 1964, pp.289-90). In the opinion of Hitti, "Ibn Khaldun was the greatest historian and philosopher ever produced by Islam and one of the greatest of all time" (quoted in Lacoste 1984, p. 1.) To Marçais, "the work of Ibn Khaldun is one of the most substantial and interesting book ever written" (ibid). To Gibb (1962), "the true originality of Ibn Khaldun's work is to be found in his detailed and objective analysis of the political social, and economic factors underlying the establishment of political units and the evolution of the State, and it is the results of this detailed analysis that constitute the ‘new science' which he claims to have founded."

4. Economics of Ibn Khaldun

image alt textFigure 4: An annotated and collated edition of the Muqaaddimah by the Egyptian scholar 'Alī 'Abd al-Wāhid Wāfī: Muqaddimat Ibn Khaldūn, mahhada la-hā wa-nashara al-fusūl wa-al-faqarāt al-nāqisah min tab'ātihā wa-haqqaqahā wa-dabata kalimātihā wa-sharahahā wa-'allaqa 'alayhā wa-'amala fahārisahā 'Alī 'Abd al-Wāhid Wāfī. (Cairo, Lajnat al-Bayān al-‘Arabī, 1957-1962, in 4 vols., 1370 pp.)

With the development of modern Islamic economics in the 20th century, Ibn Khaldun's economic ideas attracted the attention of scholars. The pioneer writings in this respect include names of Salih (1933), Rif'at (1937), Abdul-Qadir (1941), and Nash'at (1944) in the first half of the 20th century. The earliest and prominent writers on the economics of Ibn Khaldun in the second half of the century include Irving (1955), Sharif (1955) and the famous economic historian Joseph J. Spengler (1964). All these writers based their comments on the Muqaddimah. Ibn Khaldun's economic ideas have attracted attention of researchers both from the East and the West. The Muqaddimah attracted increasingly scholarly attention and appreciation since its rediscovery in the West in the early 19th century (Rabi' 1967, p.23).

Ibn Khaldun's economic thinking covers topics like the theory of value, the price system, the law of demand and supply, division of labor, production, distribution and consumption of wealth, money, capital formation and growth, domestic and international trade, population, public finance, taxation and government expenditure, conditions for the progress of agriculture, industry and trade, slums and trade cycles, and the economic responsibilities of the ruler. He also hinted at some of ‘the macro-economic relations stressed by lord Keynes' (Spengler 1964, p.304), and his cycle theory of civilization is "a model reminiscent of J. R. Hicks's" (ibid, p. 293n).

According to Siddiqi (1992, p. 49), "a distinctive feature of Ibn Khaldun's approach to economic problems, noted by several writers, is his keenness to take into consideration the various geographical, ethnic, political and sociological forces involved in the situation. He does not confine himself to the so-called economic factors alone." Issawi (1950, p. 16) considers that "more clearly than many modern economists he saw the interrelation of political, social, economic and demographic factors." As we noted somewhere else, the most appropriate description of his inquiry is ‘Economic Sociology' (Islahi 1988, p. 246). In the light of his experiences, Ibn Khaldun first proposes a theory then supports it with evidence. Thus, his economics is based on empirical study. Boulakia (1971, p. 1105) admits that Ibn Khaldun "found a large number of economic mechanisms which were rediscovered by modern economists." He writes also: "Like most of the authors of the fourteenth century, Ibn Khaldun mixes philosophical, sociological, ethical, and economical considerations in his writings. From time to time, a poem enlightens the text. However, Ibn Khaldun is remarkably well organized and always follows an extremely logical pattern" (ibid, p. 1106).

According to Lacoste (1984, p. 154), "Ibn Khaldun believes that there is close connection between the organization of production, social structure, forms of political life, juridical systems, social psychology and ideologies." To Boulakia (1971, p. 1117), "Ibn Khaldun discovered a great number of fundamental economic notions a few centuries before their official births. He discovered the virtues and the necessity of a division of labor before Smith and the principle of labor value before Ricardo. He elaborated a theory of population before Malthus and insisted on the role of the state on the economy before Keynes. The economists who discovered mechanisms that he had already found are too many to be named (…) But, much more than that, Ibn Khaldun used these concepts to build a coherent dynamic system in which economic mechanisms inexorably lead economic activity to long-term fluctuations. Because of the coherence of his system, the criticisms which can be formulated against most economic constructions using the same notions do not apply here." Spengler (1964, p. 268) considers him as the "medieval Islam's greatest economist." The fact that at present, from among the past Muslim scholars, maximum number of works are available on Ibn Khaldun's economic thought has heightened, not lessened, the curiosity and further investigation about his contribution to the economy and the society.

Issawi (1950, p. 2) summarizes the special value of Ibn Khaldun's contribution by asserting: "Indeed, it is not too much to say that Ibn Khaldun is the greatest figure in the social sciences between the time of Aristotle and that of Machiavelli, and as such deserves the attention of everyone who is interested in these sciences. More than anyone of his contemporaries, whether European or Arab, he tackles the kind of problem which preoccupies us today."

5. Justification for taxes

Figure 5: A study in Japanese about Ibn Khaldūn's sociological theories: Ibun Harudūn no "Rekishi josetsu" [Ibn Khaldūn's Introduction to his World history] by Tamura Jitsuzo¯ hen (Tokyo: Ajia Keizai Kenkyūjo, 1964-65). (Source).

According to Ibn Khaldun "man is ‘political' by nature" (Ibn Khaldun 1958, vol. 1, p. 89) [1]. This requires a government and a ruler to look after people's affairs and control them. "Anarchy destroys mankind and ruins civilization, since the existence of royal authority is a natural quality of man. It alone guarantees their existence and social organization" (I: 304).

To perform its responsibilities towards the citizens and the economy, every state needs resources which have to be raised by the government through different means, the most important being the taxes, which is the focus of Ibn Khaldun in his Muqaddimah. He stresses that finance is vitally important to run a government. And to manage the revenue and expenditure, "the ministry of taxation is necessary to the royal authority" (II: 19). "It should be known that the office (of the tax collections) originates in dynasties only when their power and superiority and their interest in the different aspects of royal authority and in the ways of efficient administration have become firmly established" (II: 20-21). Ibn Khaldun is in favour of prudent and balanced budget. "Income and expenditure balance each other in every city. If the income is large, the expenditure is large and vice versa. And if both income and expenditure are large, the inhabitants become more favorably situated and the city grows" (II: 275).

6. The tax as the main component of public finance

image alt textFigure 6: Frontispice of Al-Nazarīyāt al-iqtisādīyah 'inda Ibn Khaldūn wa-ususuhā min al-fikr al-Islāmī wa-al-wāqi' al-mujtama'ī: dirāsah falsafīyah wa-ijtimā'īyah [The economic theories of Ibn Khaldūn and its foundations in Islamic thought and in actual societal reality: a philosophical and sociological study] by 'Abd al-Majīd Mizyān (Algiers: al-Mu'assasah al-Watanīyah li-'l-Kitāb, 1988).</