443027283 : ‫الرقم الجامعي‬ ‫ ايالف علي سعيد الغامدي‬: ‫اعداد الطالبة‬

‫اقتصاد إسالمي‬
Islamic economics

1- What is the meaning of fiscal policy?

Fiscal policy is a part of economic policy of the government which is related to
government income and expenditure. It includes public taxation deficit financing. It is
aimed at achieving certain objectives like – rapid economic development.

Fiscal is related to income and expenditure of government. It refers to budgetary policy of

government. It is also known as income and expenditure policy or tax and expenditure
policy of government. The fiscal policy is of great importance for both developed and
developing countries. It is an instrument fir promoting economic growth, employment,
social welfare.

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2- What are the 3 fiscal policy tools?
1-DISCRETIONARY FISCAL POLICY:- In this policy the government makes
deliberate changes in the level and pattern of taxation, size and pattern of its expenditure
and the size and composition of public debt. Policy can either be contractionary or
expansionary.

Contractionary fiscal policy:- when the govt. reduces its expenditure and increase the
taxation rate, it is known as contractionary fiscal policy. This happens during inflation in
order to control the supply of money

And to reduce purchasing power.

2.COMPENSATOEY FISCAL POLICY:- The compensatory fiscal policy is a deliberate

action taken by the government to compensate for deficiency in supply or excess of
aggregate demand.

In this process the government increases the tax rates and decreases the govt. expenditure.
This type of policy will lower the aggregate demand and inflation will be reduced.
3.AUTOMATIC STABILIZATION FISCAL POLICY-:Automatic fiscal policy means
adopting a fiscal system with built in flexibility of tax revenue and government spending.

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3- What is the role of Zakat in fiscal polic?

To mobilize resources for economic development of the country.To increase the rate of
saving in the country so that sufficient financial resources can be obtained from within the
economy.
• To increase the rate of investment
• To remove poverty and unemployment
• To reduce economic inequality
• To reduce regional disparities
• employment generation
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4- How are taxes different from zakat?
Zakat is one of the pillars in Islam where it is a mandatory 2.5% take on the wealth of well-
to-do Muslims as already mentioned in Quran and Sunnah. Meanwhile, taxation is
considered as a contribution levied on the persons, property or business for the support of
the government zakat is not viewed as important as tax. Bakar and Rahman (2007) suggest
that tax is regarded as a crucial element of the fiscal policy, whereas zakat is viewed more
as a mere voluntary institution. These views have been found in Muslim countries since
colonisation and have not changed

MAIN features of government policy regarding public expenditure are as follows-:

Development of public enterprise: Underdeveloped

countries lack in basic and heavy industries. Establishment of these industries requires
huge capital investment.

Support to private sector: In order to accelerate the rate of economic growth in the
country, government

should encourage private sector.

Development of infrastructure: government should spent huge amount for development of

infrastructure
Social welfare: government should spend huge amount on public health education, safe
drinking water, sanitation.

5- What is the main difference between conventional fiscal policy and Islamic fiscal
policy?
The conventional economy is characterized by borrowing to finance some current
purchases, while the Islamic economy disallows interest-based lending and operates on the
basis of universal banking that mixes commerce and commercial and investment banking

may be correctly argued that zakah is the most important fiscal and distributive mechanism
of an Islamic economy. But as pointed out subsequently, zakah may generate certain
incidental effects on the economy, which can be redressed only by an appropriate
mechanism of secular levies

Fiscal policy in Islamic economics is a very important policy compared to monetary policy.
Islam considers the importance of fiscal policy because this policy is very closely related to
real economic activities, so that appropriate policies will greatly influence the progress of
economic activities in the real sector.

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