An analysis of zakat expenditure and real output: theory and evidence
This study advocates zakat as the major and potent fiscal policy instrument in an Islamic state. Zakat plays its role in macroeconomic stabilization through nondiscretionary and discretionary fiscal policy. The built-in stabilizer mechanism occurs when zakat collection is automatically reduced du...
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| Format: | Article |
| Language: | English |
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KENMS-IIUM Press
2010
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| Online Access: | http://irep.iium.edu.my/25906/ http://irep.iium.edu.my/25906/ http://irep.iium.edu.my/25906/1/AN_ANALYSIS_OF_ZAKAT_EXPENDITURE_AND.pdf |
| Summary: | This study advocates zakat as the major and potent fiscal policy instrument
in an Islamic state. Zakat plays its role in macroeconomic stabilization through
nondiscretionary and discretionary fiscal policy. The built-in stabilizer
mechanism occurs when zakat collection is automatically reduced during
recession, giving more money to the people to spend—which tends to
stimulate the economy—while during the boom period more zakat is
collected, reducing the ability of people to spend—which tends to dampen
economic activities. These reduce macroeconomic fluctuations. As a
discretionary fiscal policy, the government varies the disbursement of zakat
to the recipients whenever necessary during the phases of the business cycle.
During the expansion phase, the government decreases zakat disbursement
to reduce aggregate spending. Likewise, zakat disbursement is increased
when the economy is in the downswing to increase aggregate spending.
Empirical evidence using Malaysian data supports the hypothesis that zakat
spending is a potent fiscal instrument to improve economic performance.
The results of panel data regression analysis indicate that zakat expenditure
can significantly explain the variation in real output. This suggests that
Muslim countries should make serious effort to improve the efficiency of
zakat collection and spending to generate growth and development of the
ummah.
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