How does this work? The Quran requires that muslims above a certain threshold of wealth give away 2.5% of wealth as charity (“zakat”). In Pakistan, the government automatically taxes citizens above this threshold at the 2.5% level.

The threshold (“nisab”) is historically determined as the price of 612 grams of silver. So each year, the Pakistani government looks at the current price of silver, and taxes everyone who falls above the corresponding threshold.

Individuals who fall *just* below the threshold one year due the changed price of silver suddenly avoid a 2.5% government tax. Those people then increase their private donations to charity.

Many such donations (whether intended or not) go to charities affiliated with terrorist groups. With this additional financing, these groups conduct more attacks:

↑silver price → ↑tax threshold → ↓taxes → ↑charity → ↑terrorist financing → ↑terrorist attacks!

Read the absolutely incredible paper presented at the Stigler Center’s Political Economy of Finance conference in Chicago this weekend, by Nicola Limodio, here.

Source: Ben Marrow

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