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EXPLORATIONS IN AGENT-BASED SIMULATION: ANALYSIS OF GINI INDEX AFTER ZAKAH ENFORCEMENT UNDER INTEREST BASED SYSTEM
Diyah Putriani, Gairuzazmi Mat Ghani and Mira Kartiwi

Department of Economics, International Islamic University Malaysia
Department of Informatics System, International Islamic University Malaysia


Abstract

Current research on Zakah focuses more on potential zakah collection, factors affecting zakah payment, best practices of zakah in certain region/country, zakah as social finance, or even the performance and efficiency of zakah institution. General finding from all previous studies concludes that zakah is able to reduce poverty and hence will minimize income inequality. At this point, a question rise, i.e., by how much Gini index- a measure of income inequality- can be reduced after zakah enforcement? Considering this gap of research, this study is proposed to measure a decrease in Gini index when zakah is received by all recipients.Since the existing economy is under interest based system, thus this study will develop a model of artificial economy to simulate the impact of zakah enforcement on Gini index. To achieve the main objective, this research will simulate the interactions amongst three economic agents (households, firms, and bank) in the system. That is, households will supply labour for the firms; meanwhile firms will supply product in the goods market. Both households and firms can ask credit with certain interest rate from the bank.There will be two scenarios where the economy will simulate zakah is not exist and where zakah is introduced in the system. From these two scenarios, it can be observed a potential reduction or increment on Gini index after zakah is disbursed to all recipients. This research fundamentally is an exploratory research, thus many findings will be examined in the analysis. One of the most interesting findings is that in the long run only arround 1 percent of population own about 25 percent of total wealth in the economy without zakah. Further, the findings also observe that reason of an increase in Gini index where the economy has no zakah and observe a group of population which will dominate total wealth in the economy. An Agent-based Computational Model (ABM) simulation will be employed to conduct the simulation. The application of ABM in this research is to bring the use of computational study as an alternative methodology to develop research in the area of Islamic economics.

Keywords: Zakah, Gini Index, Agent-based Computational Model, Computational Study

Topic: Islamic Finance Technology (Shariah Fintech)

Link: https://ifory.id/abstract/Hax87WEC4JnN

Conference: THE 4th ANNUAL ISLAMIC FINANCE CONFERENCE (AIFC 2019)

Plain Format | Corresponding Author (DIYAH PUTRIANI)

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