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The Consequences of Zakat for Capital Accumulation

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  • D.H. NORULAZIDAH P.H. OMAR ALI
  • GARETH D. MYLES

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 modeled 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 nonmonotonic 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. Copyright © 2010 Wiley Periodicals, Inc..

Suggested Citation

  • D.H. Norulazidah P.H. Omar Ali & Gareth D. Myles, 2010. "The Consequences of Zakat for Capital Accumulation," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 12(4), pages 837-856, August.
  • Handle: RePEc:bla:jpbect:v:12:y:2010:i:4:p:837-856
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    References listed on IDEAS

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    1. Myles, Gareth D. & Naylor, Robin A., 1996. "A model of tax evasion with group conformity and social customs," European Journal of Political Economy, Elsevier, vol. 12(1), pages 49-66, April.
    2. Andreoni, James, 1990. "Impure Altruism and Donations to Public Goods: A Theory of Warm-Glow Giving?," Economic Journal, Royal Economic Society, vol. 100(401), pages 464-477, June.
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    Cited by:

    1. Kumru, Cagri S. & Sarntisart, Saran, 2016. "Banking for those unwilling to bank: Implications of Islamic banking systems," Economic Modelling, Elsevier, vol. 54(C), pages 1-12.

    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • P51 - Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems

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