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Causality Relationship of Zakat, Income Inequality, and Poverty: A Panel Co-Integration Approach

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  • Suriani
  • Ridwan Nurdin
  • Muhammad Haris Riyaldi

Abstract

Purpose: This study aims to analyze the potential of Zakat in distribution income policy and the causality relationship of Zakat income inequality and poverty. Design/Methodology/Approach: This study analyzes the causal relationship and the effect of Zakat, income inequality on poverty in 21 districts/cities of Aceh-Indonesia. To see the effect in the short and long term, time series analysis with Auto-Regressive Distributed Lag (ARDL) is used. The stages of the analysis test were carried out starting from the data stationarity test, optimal lag, cointegration test, and causality test. Findings: The estimation results show that in the long run, Zakat has a negative effect on poverty and income inequality has a positive effect on poverty. However, in the short run, both Zakat and income inequality do not affect poverty. Supported by the results of the causality test which shows that there is a one-way causal relationship between Zakat and poverty and Zakat with income inequality. Likewise, income inequality has a one-way causal relationship to poverty. Practical Implications: The findings of this research indicate that if the Zakat potential can be distributed optimally, then Zakat is the best policy solution to reduce poverty and income inequality. Originality/Value: The difference in this research from previous studies is to review the potential for Zakat that has become a regional policy in Aceh and to test it against poverty alleviation using the income inequality variable as a control variable. The analysis is strengthened by analyzing the causal relationship between the three variables.

Suggested Citation

  • Suriani & Ridwan Nurdin & Muhammad Haris Riyaldi, 2020. "Causality Relationship of Zakat, Income Inequality, and Poverty: A Panel Co-Integration Approach," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(4), pages 875-887.
    • Handle: RePEc:ers:ijebaa:v:viii:y:2020:i:4:p:875-887
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    References listed on IDEAS

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    1. Ahmed, Habib, 2004. "Role of Zakah and Awqaf in Poverty Alleviation (Occasional Paper)," Occasional Papers 201, The Islamic Research and Teaching Institute (IRTI).
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    3. Farzanegan, Mohammad Reza & Habibpour, Mohammad Mahdi, 2017. "Resource rents distribution, income inequality and poverty in Iran," Energy Economics, Elsevier, vol. 66(C), pages 35-42.
    4. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    5. Kao, Chihwa, 1999. "Spurious regression and residual-based tests for cointegration in panel data," Journal of Econometrics, Elsevier, vol. 90(1), pages 1-44, May.
    6. Borooah, Vani K. & Gustafsson, Bjorn & Li, Shi, 2006. "China and India: Income inequality and poverty north and south of the Himalayas," Journal of Asian Economics, Elsevier, vol. 17(5), pages 797-817, November.
    7. Luo, Chuliang & Li, Shi & Sicular, Terry, 2020. "The long-term evolution of national income inequality and rural poverty in China," China Economic Review, Elsevier, vol. 62(C).
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    Cited by:

    1. Aroua Robbana & Abdessamad Raghibi & AbdulGafar Olawale Fahm, 2024. "Revisiting Socioeconomic Development Hypothesis: Does Zakat Matter for OIC Member Countries?," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(3), pages 14379-14404, September.

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    More about this item

    Keywords

    Zakat; income inequality; poverty; cointegration.;
    All these keywords.

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty

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