Comparison of the Impact of Zakat and Conventional Tax on Income Distribution in Selected Provinces of Iran

The role of taxes in reducing economic inequalities has been a controversial issue, especially in recent decades. The destructive effects of progressive taxes on productivity have resulted in tax reforms on a global scale. With regard to its features and religious backing in Iran, it seems that Zakat (a religious tax in Islam) can have better distributive effect than current conventional taxes. Moreover, estimates indicate that the tax burden of Zakat, as the major tax in Islam, is less than current conventional taxes for Iranian households.
Using econometric analysis of panel data and Gini coefficient, the present study compares the effect of Zakat and that of conventional tax on income distribution in a number of Iranian provinces between 2001 and 2014. The results indicate that the effect of Zakat on income distribution is less than that of conventional tax.