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This paper attempts through a Comparative analysis of the economic effects of Zakah and inflationary finance to clarify the effects of imposition of these two kinds of taxes on growth, inflation and welfare.
The approach of present article is merely theoretical one. Through considering the Zakah literature, the proposed (selected) theory is presented. The findings of this research show that the imposition of Zakah on inactive properties while disregarding on bank deposits can lead to improvement and rise in investment and economic growth, whereas the effects of the inflation tax on growth are negligible.
Direct relationship between inflationary finance and the rate of inflation is obvious while Zakah in one hand is considered as an automatic economic stabilizer, and in other hard it causes the flow of revenues from the rich to the poor and actually it shows a system of reallocation of resources. The teaching of the Islamic principles explain the positive welfare effects of Zakah for both Zakah payers and receivers in contrast to the negative welfare effects of inflationary finance through disturbance on payments system and reduction in real stock of money is strongly understood and distinguished.