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FISCAL POLICY IN AN ISLAMIC ECONOMY AND THE ROLE OF ZAKAT

International Journal of Economics, Management and Accounting

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Title FISCAL POLICY IN AN ISLAMIC ECONOMY AND THE ROLE OF ZAKAT
 
Creator Yusoff, Mohammed B.; Professor, Department of Economics, Kulliyyah of Economics and Management Sciences, International Islamic University Malaysia, P. O. Box 10, 50728 Kuala Lumpur, Malaysia (email: mohammed.yusoff@iiu.edu.my).
 
Description 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 discretionary and non-discretionary fiscal policy. 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 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, zakat could complement taxation and government spending as tools of stablization policy.JEL classification: E20, E62, H30Key words: Fiscal policy, Islamic economy, Zakat.
 
Publisher Kulliyyah of Economics and Management Sciences
 
Contributor —
 
Date 2013-03-01
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
Peer-reviewed Article
 
Format application/pdf
 
Identifier http://journals.iium.edu.my/enmjournal/index.php/enmj/article/view/121
 
Source International Journal of Economics, Management and Accounting; Vol 14, No 2 (2006)
 
Language eng
 
Relation http://journals.iium.edu.my/enmjournal/index.php/enmj/article/view/121/102