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The Consequences of Zakat for Capital Accumulation

Author

Listed:
  • D.H. Norulazidah

    (Department of Economics, University of Exeter)

  • P.H. Omar Ali

    (Department of Economics, University of Exeter)

  • Gareth Myles

    (Department of Economics, University of Exeter and Institute for Fiscal Studies)

Abstract

The payment of zakat by the owners of wealth is one of the five pillars of Islam. Many countries operate with no enforcement of the obligation to pay, making zakat a form of voluntary redistribution. We analyze how zakat affects capital accumulation in a model that explicitly recognizes the voluntary nature of zakat. The voluntary payment is modelled using both warm-glow and social custom frameworks. These are embedded within an overlapping generations model with heterogenous consumers and endogenous population growth. The results show that zakat can raise the capital-labor ratio when it is motivated by the warm-glow but welfare can be non-monotonic in the strength of the warm-glow. In social custom model reduced participation can lead to a reduced capital labor ratio as the rate of zakat is increased.

Suggested Citation

  • D.H. Norulazidah & P.H. Omar Ali & Gareth Myles, 2008. "The Consequences of Zakat for Capital Accumulation," Discussion Papers 0814, University of Exeter, Department of Economics.
    • Handle: RePEc:exe:wpaper:0814
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    References listed on IDEAS

    as
    1. Myles, Gareth D. & Naylor, Robin A., 1996. "A model of tax evasion with group conformity and social customs," European Journal of Political Economy, Elsevier, vol. 12(1), pages 49-66, April.
    2. M. Fahim Khan, 1984. "Macro Consumption Function in an Islamic Framework وظيفة الاستهلاك الكلي في إطار إسلامي," Journal of Research in Islamic Economics, King Abdulaziz University, Islamic Economics Institute., vol. 1(2), pages 3-25, July.
    3. Andreoni, James, 1990. "Impure Altruism and Donations to Public Goods: A Theory of Warm-Glow Giving?," Economic Journal, Royal Economic Society, vol. 100(401), pages 464-477, June.
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    Cited by:

    1. Rini Rini, 2020. "A Review of the Literature on Zakah between 2003 and 2019," International Journal of Economics and Financial Issues, Econjournals, vol. 10(2), pages 156-164.
    2. Alam, Md. Mahmudul & Wahab, Norazlina Abd & Haq, Ashraf Al & Ahmad, Siti Aznor, 2022. "Sustainable Development Status of Zakat Recipients: Empirical Investigation based on Malaysia’s Kedah State," OSF Preprints y4scw, Center for Open Science.
    3. Kumru, Cagri S. & Sarntisart, Saran, 2016. "Banking for those unwilling to bank: Implications of Islamic banking systems," Economic Modelling, Elsevier, vol. 54(C), pages 1-12.

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    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • P51 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems

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