Zakah, moderation and aggregate consumption in an islamic economy

Abstract EN

A critical review of writings on this subject reveals that the effect of certain Islamic injunctions on aggregate consumption has been studied within Keynesian consumption theory, no attempt being made to come up with an alternative theory.

Refuting the conclusions of some previous writers, it is established that while the effects of zakah and infaq (charitable spending) on consumption, ceteris paribus, are expansionary, and that of Islamic moderation contractionary, the net effect cannot be determined a priori.

It depends on empirical values of some parameters.

Sensitivity analysis performed on likely values of relevant parameters, confirms that the net effect of Islamic injunctions on the marginal propensity to consume will be neutral.