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| Gareth Donald Myles and Norulazidah Omar Ali |
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| ''The Consequences of Zakat for Capital Accumulation'' |
| ( 2010, Vol. 12 No.4 ) |
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| 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 the social custom model reduced participation can lead to a reduced capital-labor ratio as the rate of zakat is increased. |
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| Keywords: Zakat, religious obligation, voluntary redistribution, capital accumulation, warm-glow, social custom |
JEL: H2 - Taxation, Subsidies, and Revenue: General
E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General |
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| Manuscript Received : Oct 28 2008 | | Manuscript Accepted : Mar 08 2012 |
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