Indirect Taxes and Public Debt in the World of Islam before 1800

Abstract

Indirect taxes and public debt in the ‘world of Islam’ before 1800. A comparison of Western and Islamic public finance. Wantje Fritschy – Vrije Universiteit Amsterdam – June 2007 The ‘world of islam’ and ‘the West’ before 1800 seem to have displayed different ‘fiscal values’: not only was it forbidden to take or offer interest according to the Quran, but also indirect urban taxes were illegal according to the shari‘a. Can these differences have been important to explain their divergent historical development? Or was Sevket Pamuk (2004) right in supposing that during the seventeenth and eighteenth century the parallels between the evolution of Ottoman public finance and that of its European counterparts became in fact quite striking? This paper seeks to answer these questions on behalf of existing literature and by focusing on the Middle East and North Africa. It emphasizes the absence of urban public finance and the lack of urban autonomy in this part of the world. It moreover highlights the importance of indirect urban taxation in Western Europe for a ‘financial revolution’ that enabled states to contract perpetual loans at low rates of interest and that made public debts into an important element of their fiscal systems. It concludes that an understanding of the pre-Islamic historical roots of institutional differences between cities in both worlds may be at least as important as a focus on differences in ‘fiscal values’. From a comparison in more detail of the relations between tax farming and public debt in France with the seemingly related malikane- and esham-systems of public finance in the Ottoman Empire, it concludes that both fiscal systems remained in fact strikingly different. The paper, lastly, suggests that differences in population development and population density, due to ecological differences in both parts of the world, may have been as important as ‘fiscal values’ to explain this continuing difference.