The Role of Zakat in Overcoming Inflation and Unemployment: Revisiting the Trade-Off Theory

Authors

  • Mohammad Syafii Antonio Tazkia Islamic University College, Indonesia
  • Mohammad Mahbubi Ali IAIS Malaysia
  • Jebel Firdaus Tazkia Islamic University College, Indonesia

DOI:

https://doi.org/10.52282/icr.v12i1.822

Keywords:

Zakat, Inflation, Unemployment, Trade off, A.W Philips, Fiscal Policy

Abstract

The present study aims to examine the role of zakat in addressing unemployment and inflation, while also revisiting A.W. Phillips’ trade-off theory. The study adopts a qualitative methodology, using library research to critically analyse how zakat could address unemployment and inflation. The study argues that the optimal application of zakat could overcome the issue of unemployment while maintaining price stability. This is true since zakat can be distributed in two forms: consumptive and productive. Therefore, an increase in aggregate demand will always be followed by a rise in aggregate supply; the distribution of zakat in the consumptive form will increase aggregate demand, while the distribution of zakat for a productive purpose will increase aggregate supply. An increase in aggregate demand would in turn increase production, thus absorbing more labour as a result. This is where zakat addresses unemployment. On the other hand, a rise in aggregate demand will initially inflate the aggregate price. However, since the increase in aggregate demand is simultaneously followed by an increase in aggregate supply due to the distribution of zakat in its productive form, the price remains stable. Aggregate demand and aggregate supply cross at an equilibrium point. More importantly, the price is stable while the quantity of production is at its highest level. The findings of the study serve as a reference point for regulators formulating fiscal policy embedded in the zakat system.  

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Published

2021-06-30

How to Cite

Antonio, Mohammad Syafii, Mohammad Mahbubi Ali, and Jebel Firdaus. 2021. “The Role of Zakat in Overcoming Inflation and Unemployment: Revisiting the Trade-Off Theory”. ICR Journal 12 (1):73-97. https://doi.org/10.52282/icr.v12i1.822.

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