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This study advocates zakat as the major and potent fiscal policy instrument
in an Islamic state. Zakat plays its role in the macroeconomic stabilization
policy through the non-discretionary and discretionary fiscal policy. The built-
in stabilizer mechanism occurs when zakat collection is automatically
reduced during recession giving more money to the people to spend which
tends to stimulate the economy; while during the boom period more zakat is
collected, reducing the ability of the people to spend which tends to dampen
economic activities. These reduce macroeconomic fluctuations. As a
discretionary fiscal policy, the government varies the disbursement of zakat
to the recipients whenever necessary during the phases of a business cycle.
During the expansion phase, the government decreases zakat disbursement
to reduce aggregate spending. Likewise zakat disbursement is increased
when the economy is in the downswing to increase aggregate spending.
Empirical evidence using Malaysian data supports the hypothesis that zakat
spending is a potent fiscal instrument to improve the economic performance.
The results of panel data regression analysis indicate that zakat expenditure
could significantly explain the variation in the real output. This suggests that
Muslim countries should make serious effort to improve the efficiency of
zakat collection and spending to generate growth and the development of
ummah.
Muslim Jurists like to stress that the main difference between Zakat and taxation is that Zakat falls
on the annual accumulated wealth of the Zakat payer, while tax falls on the income of the tax payer;
they argue that it is this difference that makes Zakat fairer than taxation as it falls more heavily on the
rich than the poor and thus achieves more social justice. However, the response to this claim is that
taxes in most fiscal systems are levied on capital gains - through the alienation of movable and
immovable property, taxes are also levied on inheritance and some countries impose a mansion tax,
proving that there is a wider basis for extracting revenue in taxation than there is in Zakat. The issue
of social justice rises again when Muslim Jurists stress that Zakat as a religious duty is holy and
divine and thus cannot be altered or reformed whether such reform was targeting the type of wealth
on which Zakat falls or the Nisab (the specified minimum wealth upon which the liability of Zakat
rises), or those who are liable to pay it or its beneficiaries, none of this can be reformed 2. Whilst this
characteristic may be viewed as adding certainty to Zakat, on the other side of the argument it can
viewed inflexible, inadaptable to change and as undermining the idea of social justice.
This article attempts to compare Zakat with taxation, highlighting the
advantages and limitations of both redistributive tools.
Zakat is one of the pillars of Islam but also one of the pillars important the fight against poverty, in this research paper we will
propose an econometric model to measure the contribution and the impact of zakat fund in Algeria in the fight against poverty
from 2003 to 2013 to achieve this we have used an estimation with the OLS method. Through that we have arrived at that
result which demonstrates that the Algerian zakat fund helps to create new businesses, which leads the reduction of
unemployment and poverty but this contribution remains small.
This study advocates zakat as the major and potent fiscal policy instrument in
an Islamic state. Zakat plays its role in the macroeconomic stabilization policy
through the non-discretionary and discretionary fiscal policy. The built-in
stabilizer mechanism occurs when zakat collection is automatically reduced
during recession giving more money to the people to spend which tends to
stimulate the economy; while during the boom period more zakat is collected,
reducing the ability of the people to spend which tends to dampen economic
activities. These reduce macroeconomic fluctuations. As a discretionary fiscal
policy, the government varies the disbursement of zakat to the recipients
whenever necessary during the phases of a business cycle. During the
expansion phase, the government decreases zakat disbursement to reduce
aggregate spending. Likewise zakat disbursement is increased when the
economy is in the downswing to increase aggregate spending. Empirical
evidence using Malaysian data supports the hypothesis that zakat spending is a
potent fiscal instrument to improve the economic performance. The results of
panel data regression analysis indicate that zakat expenditure could significantly
explain the variation in the real output. This suggests that Muslim countries
should make serious effort to improve the efficiency of zakat collection and
spending to generate growth and the development of ummah.