Where Did It Come From?
Many believed that the idiom dated to the 16th century, when St Paul's Cathedral in London was in need of expensive repairs. To fund this, some of the lands belonging to the estate of St Peter's Cathedral in Westminster were sold off. As it happens though, the expression predates this time period.
Another of the theories about its origins lies in church taxation. In England before the Reformation, taxes had to be paid to both St Paul's Cathedral in London and St Peter's Basilica in Rome. In lean years when there wasn't enough money to pay both taxes, the payment to one of these churches would have to be stinted on in order to meet the other payment, in effect "robbing Peter to pay Paul." Again, this origin story is disputed by some.
What we do know is that the idiom was in existence in the mid-1500's, because in 1546 the English writer John Heywood put out a volume of proverbs he'd collected , entitled A dialogue conteinyng the nomber in effect of all the prouerbes in the Englishe tongue. One of the sayings contained in this volume was: "Rob Peter and pay Paul: thou sayest I do; But thou robbest and poulst Peter and Paul too." In addition, Jacob's Well, An Englisht treatise on the cleansing of man's conscience, which dates from the 1440's includes the phrase: "To robbe Petyr and geve it Poule, it were non almesse but gret synne."
The idiom may be even older; John Wyclif's 1380 Selected English Works contains the following: "Lord, hou schulde God approve that you robbe Petur and gif is robbere to Poule in ye name of Crist?" There is, however, some suggestion that this phrase is not original to the text; it is found in the reprint from the late 1800's but the original work is lost to us.
However it came about, the idiom "rob Peter to pay Paul" is a pithy and descriptive one, as well as a very unsound economic practice.