Is equity financed budget deficit stable in an interest free economy ?

Abstract EN

The purpose of this paper is to analyze the stability of an equity financed budget deficit in an interest free Islamic economy.

To this effect a small closed economy theoretical macroeconomic model broadly consistent with the Islamic tenets is developed.

This study found that under a strong wealth effect an equity financed deficit is not necessarily unstable and that government expenditure policies may contribute positively in terms of enhancing the output of the economy