How Zakat can affect Inflation in Indonesia through Modified Keynesian Consumption
Abstract
As bank of Indonesia with its inflation targeting failed, mainy, to maintain inflation in the range that has been decided and also Indonesia never gain near zero inflation yet as a form of price stability based on some economists, the main objective of this paper is to investigate on how to control level of inflation through modified keynesian consumption model that mainly incorporates zakat and israf. The data that are gathered from 2002-2016 (15 observation years) because of the very lack of data, however, these data shows BLUE and no spurious regression. Venn diagram is utilised to compute important variables in the model, simple regresion and some diagnostic test are conducted to study the coefficient econometrically, and unit root test is conducted to see whether any spurious regression or not. the result shows that zakat will make MPC of muzakki lower than mustahik, as muzakki pays higher zakat to mustahik, this condition will not be followed by increasing level of inflation. However, the study also shows that existing israf (extravagant in consumption) will gradually reduce the ability of zakat to stabilise inflation.
Keywords: Consumption; Keynesian; Zakat; Muzakki, Mustahik, Israf; Inflation
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