Can Zakat Charity Help Reduce Economic Inequality?

Abstract

Purpose – This paper suggests an agent based model of economic behavior based on which it argues that the Islamic charity of Zakat can be rationalized as it significantly reduces wealth inequalities. 
 Design/methodology/approach – An Agent Based Model (ABM) of wealth distribution (Wilensky, 1998) is configured to introduce Zakat in the model. Simulations were run in the model with ordered and random distribution of Zakat charity and wealth distribution pattern compared with the standard simulation without Zakat.
 Findings – The impact of this very small charity on the part of the rich (2.5% of net wealth) showed significant impact on wealth distribution pattern as it changed the power law distribution into normal distribution of wealth.
 Practical implications – The results emphasize non-conventional handling of the economic problem of poverty and wealth signifying the importance of faith based policing
 Originality/value – The paper contributes an agent based simulation which is a relatively newer technique to study human behavior and is commensurate to complexity theory. Its use is relatively rare in Islamic Economics and the paper is the first to propose a decentralzied model simulation of Islamic charity of Zakat.