The Consequences of Zakat for Capital Accumulation

D.H. Norulazidah, P.H. Ali and Gareth Myles ()
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D.H. Norulazidah: Department of Economics, University of Exeter
P.H. Ali: Department of Economics, University of Exeter

No 814, Discussion Papers from University of Exeter, Department of Economics

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.

JEL-codes: E62 H21 P51 (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: The Consequences of Zakat for Capital Accumulation (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:exe:wpaper:0814

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