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Title: Theoretical studies and an empirical investigation of the system of zakat
Author: Ali, Norulazidah Pg. Hj. Omar
ISNI:       0000 0004 2670 1171
Current Institution: University of Exeter
Date of Award: 2008
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This thesis contains two theoretical essays and one empirical essay relevant to zakat. Zakat on wealth is a religious tax or obligation that is imposed on Muslims who own wealth above the minimum exemption limit. It is levied on different types of wealth at 2.5 percent as a benchmark. Acting as a redistributive mechanism, the proceeds of zakat are then distributed among the poor and needy living within a country's boundary. In recent years, economists have discussed the economic effects of zakat particularly on consumption and investment. Most of the analysis of these studies was based on a static Keynesian model with varying conclusions.Hence, the first essay attempts to investigate the economic effects of zakat on long-term economic growth particularly the growth of capital stock via the construction of a dynamic model. For the purpose of our analysis, an overlapping generations model (OLG) with heterogeneous economic agents is used as the theoretical framework. This first model is a warm-glow model for zakat and the second model treats the voluntary payment of zakat as part of a social custom. The two models give different results for the implication of zakat on the capital stock. The warm-glow model for zakat shows that when zakat increases, the capital stock increases whereas in the social-custom model, the capital stock is reduced. The warmglow model also suggests that giving out more zakat leads to a higher proportion of poor in the population. The social-custom model on the other hand indicates that increasing zakat would discourage the rich from making a voluntary payment. The second essay focuses on the impact of zakat on the equilibrium rates of return and allocation of a risky and a risk-free asset. Our model is based on the static general equilibrium framework where we start with a model with no zakat and then extend it to include zakat assumed to be at 2.5 percent of the returns of assets. Through simulations, we are able to compare the results of the two models. The equilibrium rates of return of each of the assets are higher in the presence of the zakat than when it is absent. Our simulation also demonstrates that the presence of zakat causes investors to allocate a higher proportion of their investment towards risky assets compared to when there was no imposition of zakat. This suggests that individuals are encouraged to choose investments which yield a higher rate of return as only investments with higher risks would ensure a greater reward to compensate for the risks undertaken. Investing in an asset which has a higher rate of return than the zakat rate is also essential in order tomaintain one's wealth. Our model also suggeststh at paying zakat on sharesw ould have a positive impact on the household's welfare as long as the zakat revenue collected from shares is redistributed to the poor. The third essay investigates the realities of the practice of zakat particularly on its collection and distribution. For the purpose of our investigation, Brunei was selected as the object of study and two different questionnaires were implemented in our surveys in order to gather data from zakat payers and zakat recipients. This survey uses data from 100 zakat payers, 100 recipients and 50 non-recipients of zakat. We describe the payer's payment practice and wealth and income patterns as well as the socio-economic characteristics of the recipients and non-recipients of zakat. From the collection side of zakat, our data have shown that there are a large proportion of people failing to pay zakat and there is much zakat potential if everybody were to pay. We then try to identify factors that would help explain why people voluntarily pay zakat in an environment where payment of zakat is not enforced. Via logistic regression analysis, we found that the people with higher net income and who are more religious are more likely to voluntarily pay than those who have less net income and are less religious. From the distribution side of zakat, we have found that there are significant differences between the recipients and non-recipients of zakat before the distribution of zakat proceeds. However, after zakat proceeds are distributed to the recipients the differences between these two groups disappear. We then try to identify the variables that affect the successfulness of an application for receiving zakat proceeds. Our regression analysis demonstrates that households with lower per-capita net income and higher child dependency are more likely to be accepted as zakat recipients
Supervisor: Not available Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available