Zakat and Principles of Taxation Economic Efficiency, a Comparative Analysis With Taxes

Abstract

Considering Zakat as a form of taxation, this paper attempts to apply the principle of economic efficiency and the associated key concepts to Zakat.

The paper shows that while Zakat generally behaves similarly to taxes, in the sense that it would have a behavioral effect, a substitution effect and a deadweight loss (or additional burden), there are arguments that: (i) Zakat behavioral effect would be less significant than that of tax, (ii) Zakat deadweight loss would be lower than that of tax and (iii) Zakat would have a more favorable impact on saving than tax.

Zakat, economic efficiency, tax, income effect, substitution effect, deadweight loss.