Abstract:

In this paper, we identify institutions in Islam that can help in achieving egalitarian distribution of income along with continued growth. We discuss that the principle of risk-based productive enterprise can foster capital formation and entrepreneurship in an Islamic economic framework that disallows fixed return on money capital in the form of interest. We discuss that a uniform Zakat levy on wealth and produce can result in tax rate smoothing, automatic stabilization of business cycle and encourage long-term investments. We also highlight the effects of inheritance laws of Islam on intergenerational redistribution of endowments. We argue that endowment redistribution in every generation in each family unit will automatically keep the inequitable distribution of resources in check without depending on the pace, nature and distribution of economic growth. We use mathematical modeling to show the effects of these institutions on economic outcomes.

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