What are the effects of zakat on consumption and investment in Islamic economy?

Answer 1

There are several studies regarding the effect of zakah o­n aggregate consumption. In brief, if o­ne adopts the proposition that the marginal propensity to consume of the poor is higher than that of the rich, the redistribution of income through zakah results in an increase in aggregate consumption of the whole society. In a society in which aggregate consumption is basically satisfied by domestic production, the increase in consumption therefore increases investment and output through the multiplier effect. This in turn increases employment, as well as the society's ability to provide revenues for the Government.22

The zakah transfer payment also influences the composition of aggregate consumption, bringing it towards those commodities that fulfill 'basic needs, since it increases demand for them. This also affects the composition of production due to the increase in demand for basic needs

commodities.

The increase in production also implies a subsequent increase in investment, which will be fulfilled through raising of the society to a higher level of output, income, consumption, and saving, (A survey of institution of Zakah" by Abu Al Hasan Sadiq)