Reducing Poverty and Income Inequality Through Zakat Redistribution During the COVID-19 Crisis

Poverty and income inequality remain persistent development challenges across many countries, including those with established zakat management systems. Although zakat is widely recognized as an Islamic social finance instrument capable of improving social welfare, empirical evidence regarding the effectiveness of zakat redistribution across different economic conditions, particularly before, during, and after the COVID-19 pandemic, remains limited. This study addresses this gap by examining whether zakat redistribution effectively reduces poverty and income inequality and whether its effectiveness is state-dependent across crisis and recovery regimes. This study employs the Pooled Mean Group Autoregressive Distributed Lag (PMG-ARDL) approach using quarterly panel data from eight countries covering the 2016-2025 period. Quarterly observations were generated through quadratic match-average interpolation. Two empirical models, poverty and income inequality, were estimated while controlling for GDP per capita, inflation, and the Human Development Index. The findings reveal that zakat redistribution exerts a significant negative effect on poverty in both the short and long run, with the strongest long-run impact occurring during the COVID-19 period. Regarding income inequality, zakat redistribution produces a significant long-run negative effect, whereas the short-run effect is significant only for the full-sample estimation. Robustness tests using Fully Modified Ordinary Least Squares (FMOLS) and Dynamic Ordinary Least Squares (DOLS) confirm the consistency of the PMG-ARDL estimates. These findings underscore the importance of strengthening zakat governance, collection, redistribution, and digitalization to enhance poverty alleviation and inequality reduction, particularly during future economic crises.