Tax-farming and resource allocation in past Islamic societies

Abstract EN

Tax-farming as practiced in Medieval Egypt, Moghul India and the Ottoman empire is considered as a means of resource allocation in an interest-free economy.

Material from Turkish archives is utilized to analyze how the system worked by giving signals to the state, in the form of the bids made by the tax-farmers, as to the relative profitability of the various sectors of the economy.

In making these bids, the tax-farmers were guided by the expected rates of return in the relevant sectors.

Changing profit expectations caused geographical and sectoral shifts of resources.

The paper places the historical discussion into perspective by making a brief review of contemporary literature on resource allocation in a modern interest-free Islamic economy.

It also notes some negative aspects of the practice of tax-farming.-