Bridging Economic Inequality in OIC Countries through Zakat, Fiscal Policy, and I-HDI: Is Institutional Quality Crucial? Ega Rusanti (a*), Tika Widiastuti (b), Siti Zulaikha (c)
a) Faculty of Economics and Business, Universitas Airlangga
Jl. Airlangga No.4 - 6, Airlangga, Kec. Gubeng, Surabaya, Jawa Timur, Indonesia
*ega.rusanti-2022[at]feb.unair.ac.id
b) Faculty of Economics and Business, Universitas Airlangga
Jl. Airlangga No.4 - 6, Airlangga, Kec. Gubeng, Surabaya, Jawa Timur, Indonesia
tika.widiastuti[at]feb.unair.ac.id
c) Faculty of Economics and Business, Universitas Airlangga
Jl. Airlangga No.4 - 6, Airlangga, Kec. Gubeng, Surabaya, Jawa Timur, Indonesia
siti-z[at]feb.unair.ac.id
Abstract
This study aims to examine the impact of zakat, fiscal policy, and the Islamic Human Development Index (IHDI) on economic inequality in OIC countries, with institutional quality as a moderating variable. An Ordinary Least Square (OLS) approach is utilized to analyze the relationships between these variables, using a sample of 38 OIC countries from 2010 to 2021. The sample is divided into two categories: lower-middle-income countries and upper-middle-to-high-income countries. The findings indicate that zakat and fiscal policy effectively reduce inequality levels in both groups of countries. However, the IHDI shows a positive effect, increasing inequality in lower-income countries while acting as a reducing factor in higher-income countries. Additionally, the study reveals that the moderating role of institutional quality is effective only in high-income countries. This research is pioneering in explaining the relationship between zakat, fiscal policy, IHDI, and the moderating role of institutional quality in reducing inequality in OIC countries. The study emphasizes the importance of strengthening institutions, which should be a focus for governments to implement more effective income distribution policies and practices. Furthermore, enhancing zakat regulation is essential to enrich the contribution of Islamic social finance.
Keywords: Fiscal Policy- Economic Inequality- Institutional Quality- Islamic Human Development Index (IHDI)- Zakat
