IIUM Repository

An analysis of zakat expenditure and real output: theory and evidence

Yusoff, Mohammed (2010) An analysis of zakat expenditure and real output: theory and evidence. IIUM Journal of Economics and Management, 18 (2). pp. 139-160. ISSN 1394-7680

PDF - Published Version
Download (150kB) | Preview


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.

Item Type: Article (Journal)
Additional Information: 4178/25906
Uncontrolled Keywords: Zakat, fiscal policy, real output, panel data, Malaysia
Subjects: H Social Sciences > HJ Public Finance > HJ7451 Expenditures. Government spending
Kulliyyahs/Centres/Divisions/Institutes (Can select more than one option. Press CONTROL button): Kulliyyah of Economics and Management Sciences > Department of Economics
Depositing User: Professor Mohammed Yusoff
Date Deposited: 02 Oct 2012 09:05
Last Modified: 05 Feb 2014 11:30
URI: http://irep.iium.edu.my/id/eprint/25906

Actions (login required)

View Item View Item


Downloads per month over past year