1.

An Analysis of Zakat Expenditure and Real Output: Theory and

Empirical Evidence

This study advocates zakat as the major and potent fiscal policy instrument
in an Islamic state. Zakat plays its role in the macroeconomic stabilization
policy through the non-discretionary 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 the 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 a 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 the economic performance.
The results of panel data regression analysis indicate that zakat expenditure
could significantly explain the variation in the real output. This suggests that
Muslim countries should make serious effort to improve the efficiency of
zakat collection and spending to generate growth and the development of
ummah.

2. Zakat and Economic Development: Micro and Macro Level

Evidence from Pakistan

Zakat, as a transfer payment, is an important instrument to achieve social

welfare in a society in Islamic ideology. This study attempts to analyze the
impact of Zakat on economic development using micro and macro level data
for Pakistan. The overall analysis shows that Zakat has a positive impact on
economic development in Pakistan. More specifically, micro evidence shows
that Zakat significantly enhances the welfare of the households. Macro
evidence also highlights that Zakat significantly contributes to economic
growth in Pakistan. These findings have important implications for Pakistan.
 3. ZAKAT VS. TAXATION: THE ISSUE OF SOCIAL JUSTICE AND
REDISTRIBUTION OF WEALTH

Muslim Jurists like to stress that the main difference between Zakat and taxation is that Zakat falls
on the annual accumulated wealth of the Zakat payer, while tax falls on the income of the tax payer;
they argue that it is this difference that makes Zakat fairer than taxation as it falls more heavily on the
rich than the poor and thus achieves more social justice. However, the response to this claim is that
taxes in most fiscal systems are levied on capital gains - through the alienation of movable and
immovable property, taxes are also levied on inheritance and some countries impose a mansion tax,
proving that there is a wider basis for extracting revenue in taxation than there is in Zakat. The issue
of social justice rises again when Muslim Jurists stress that Zakat as a religious duty is holy and
divine and thus cannot be altered or reformed whether such reform was targeting the type of wealth
on which Zakat falls or the Nisab (the specified minimum wealth upon which the liability of Zakat
rises), or those who are liable to pay it or its beneficiaries, none of this can be reformed 2. Whilst this
characteristic may be viewed as adding certainty to Zakat, on the other side of the argument it can
viewed inflexible, inadaptable to change and as undermining the idea of social justice.
This article attempts to compare Zakat with taxation, highlighting the
advantages and limitations of both redistributive tools.

4.A REVIEW ON LITERATURES OF ZAKAT

BETWEEN 2003-
2013
The objective of this article is to analysis the related literatures on zakat
between 2003 until 2013. The methodology of this article is through
descriptive research based on documentanalysis on previous articles and
literatures on zakat between 2003 until 2013. Data from each articles related
in this field were collected and statistically analyzed using the Statistical
Product & Service Solution (SPSS) software. This study looked at several
variables which include authorship patterns, number of articles published,
research approach, subject and gender of the author. The general finding of
this article shows that the zakat issues are among the most discussed issues
among the Muslims scholars as well as the economic researchers due to the
porpoise of zakat is among the method in reducing and eliminating poverty.
Henceforth, this article provides significant suggestions and strategies for
the future exploration on zakat.
 5. THE EFFECT OF RELIGIOUS EXPENDITURES ON THE MONEY
DEMAND OF IRAN
Exploring the money demand function in solving macroeconomic problems and
making appropriate policies matter. And adopting fiscal and monetary policies on the
economy of every country is based on considering the demand for money in that
country. Various Studies have been conducted on money demand function, and its
effective variables on the developed and developing countries, whereas a true
understanding of this function can lead the Economic policy makers to adopt
appropriate fiscal and monetary policies in order to obtain the economic goals. In this
thesis, using Vector Auto regression Distributed Lag (ARDL) method and the annual
data in 1991 to 2013, we have studied the effects of religious expenditure variables on
the money demand function; therefore, results suggest that these variables have a
positive and meaningful effect on the money demand function in the long term and
short term as well. In addition, GDP relationship with the money demand represents
the positive effects on the money demand. Furthermore, the interest rate and the
negative currency rate indicate a reverse effect on the money demand.

6. The Impact of Zakat Fund in Reducing Poverty Case of Algeria

Zakat is one of the pillars of Islam but also one of the pillars important the fight against poverty, in this research paper we will
propose an econometric model to measure the contribution and the impact of zakat fund in Algeria in the fight against poverty
from 2003 to 2013 to achieve this we have used an estimation with the OLS method. Through that we have arrived at that
result which demonstrates that the Algerian zakat fund helps to create new businesses, which leads the reduction of
unemployment and poverty but this contribution remains small.

7. Zakat and Economic Development: Micro and Macro Level

Evidence from Pakistan

Zakat, as a transfer payment, is an important instrument to achieve social

welfare in a society in Islamic ideology. This study attempts to analyze the
impact of Zakat on economic development using micro and macro level data for
Pakistan. The overall analysis shows that Zakat has a positive impact on
economic development in Pakistan. More specifically, micro evidence shows that
Zakat significantly enhances the welfare of the households. Macro evidence also
highlights that Zakat significantly contributes to economic growth in Pakistan.
These findings have important implications for Pakistan.

8. FISCAL POLICY IN AN ISLAMIC ECONOMYAND THE ROLE OF

ZAKAT
This study incorporates Zakat into a simple macroeconomic model of an Islamic
economy and analyzes the role of Zakat in the national income determination. The
reduced form aggregate consumption function suggests that the determinants of
consumption are: Zakat expenditure, taxes, income, and asset holdings of
individuals. Zakat could be used as a counter-cyclical policy through the
discretionary and non-discretionary fiscal policy. The discretionary fiscal policy is
carried out by varying the disbursement of Zakat to the recipients. During the
expansion phase of the business cycle the government reduces Zakat expenditure to
close the inflationary gap. This action helps increase the Zakat surplus in the
Baitul-Mal. Likewise the Zakat expenditure could be increased, by using the Zakat
surplus accumulated during the boom periods, when the economy is in the down-
swing to spur aggregate spending and economic activities. Therefore government
spending and taxation could complement Zakat as stabilization policy.

9. Philanthropy in Practice: Role of Zakat in the Realization of Justice

and Economic Growth
The entire economic scheme developed under the guiding principles of Shariah
(Islamic Law) envisages an internally balanced system of economy that neither
accepts capitalism nor communism in totality. According to the laws, the
realization of justice (adl) and wellbeing (falah), i.e., the means to seek
blessings of God (fadhl al-Allah), determines its principal objectives (maqasid).
Nevertheless, the economic structures adopted by the contemporary Muslim
societies, in general, are incoherent with the economic philosophy of Islam.
They are practically disconnected from the mechanics and efficiency of Islams
equity instruments and philanthropic institutions. Consequently, as per Marxs
class conflict theory, economic inequality has spread its roots and traumatized
the dynamics of participatory economics, distributive justice, and social equality.
Factors such as non-inclusive economics, exploitation as a market principle, and
concentration of wealth in few pockets have completely transformed Muslim
economies into capitalist ones. After conducting critical researches vis--vis
this paradigm shift in the Muslim world, highbrow Muslim intellectuals have
reached to this point that alongside with interest-based means of financial
intermediation, non-functionality of philanthropic institutions such zakat and
baitulmal has practically divided the society into privileged and deprived
classes. The economic advantage of privileged class over deprived class has
become one of the major stumbling blocks in the way of achieving welfare and
social justice. Under such vulnerable conditions, it is being argued that
reinstitutionalization of zakat, both at civil society and state level, is the
means to provide socio-economic insurance to those who are otherwise
neglected. By facilitating the constructive channelization of wealth from
privileged class to deprived class, institution of zakat has the potentiality to
overcome the problems like relative deprivation, poverty, illiteracy,
unemployment, and so on. In this context, giving of zakat must not be seen
merely as a religious obligation; on the contrary, it must be examined in relation
to its socio-economic effects. The present research is an attempt to answer the
question regarding how reinstitutionalization of zakat can help in the
minimization of poverty rate and promotion of socio-economic justice in
contemporary unbalanced Muslim societies.

10. An Analysis of Zakat Expenditure and Real Output: Theory

and Empirical Evidence

This study advocates zakat as the major and potent fiscal policy instrument in
an Islamic state. Zakat plays its role in the macroeconomic stabilization policy
through the non-discretionary 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 the 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 a 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 the economic performance. The results of
panel data regression analysis indicate that zakat expenditure could significantly
explain the variation in the real output. This suggests that Muslim countries
should make serious effort to improve the efficiency of zakat collection and
spending to generate growth and the development of ummah.

11. Zakah, Macroeconomic Policies, and Poverty

Alleviation: Lessons from Simulations on Bangladesh
The paper studied the role of zakah and macroeconomic policies aimed at growth of income
and providing opportunities to the poor in eliminating poverty. Simulation of various macroregimes
and zakah schemes for Bangladesh indicate that while macroeconomic policies play
an important role in reducing poverty, poverty cannot be eliminated without using zakah in an
effective way. The paper also suggests that there are certain conditions under which zakah
will be able to make an impact on poverty. First, zakah has to be complimented by robust
macroeconomic policies that enhance growth and also redistribute income to eliminate
poverty. Second, while more zakah has to be collected and disbursed, the impact on poverty
will only be significant when a larger percentage of zakah proceeds are used for productive
purposes. Given the important role of zakah in poverty alleviation, there is a need for
countries to integrate this vital faith-based institution in the development strategy and
programs of Muslim countries, including Bangladesh.
 12.Preparedness Response of Indonesian Tax Offices Concerning the Zakat
as a Taxable-Income Deduction
This paper aims to analyze the preparedness response of tax offices on the
issue of the zakat as a taxable-income deduction. Act No. 17/2000, at the top
level, and Government regulation No. 60/2010 supports this policy in detail.
However, many people do not claim restitution regarding this policy. This paper
uses primary data gathered from phone interviews. Seven tax offices, including
service centers, were interviewed in March 2012. The paper provides evidence
that each tax office had different responses, provided less information, and
acted unsupportive on the issue. In addition, the process of restitution for tax
claims is difficult and unfavorable from the zakat payers perspective. New tax
regulations must be supported by clear information socialization and efficient
tax restitution process from tax the office. Otherwise, it would not be effective
as the benefits may be smaller than the effort.

13. The Impact of Zakat on Aggregate Consumption

in Malaysia
This study aims to look at the impact of zakat distribution on aggregate consumption in view
of zakat distribution by zakat institutions is mostly in the form of money for basic needs and
monthly cash support. The study uses panel data of states in Peninsula Malaysia and analysis
is done by using the fixed effect model. The study finds that zakat distribution has a positif
impact on aggregate consumption. However, the impact is small and short run. Hence this
study recommends that zakat distribution should be not limited to the fulfilment of consumable
needs only but should also cover other forms of monetary aid that can generate a continuous
flow of income for zakat recepients.