SOCIO-ECONOMIC IMPACT OF CHARITY IN THE FORM OF ZAKAT AND ITS DETERMINANTS: A PROPENSITY SCORE MATCHING (PSM) APPROACH

Abstract

This study examines the impact of Zakat participation on household consumption, warm glow, trust on charitable and government institutions, economic activity and inequality reduction in Pakistan. Employing propensity score matching (PSM) with different matching techniques based on data collected through a household survey. We employed probit regression to estimate covariates and propensity scores, followed by PSM to analyze the average treatment effect on the treated (ATT). The probit regression results show that gender, marital status, residential house ownership, trust in charity organizations, and total family income are significant predictors of Zakat compliance. The PSM results indicate a statistically significant positive effect of Zakat participation on total household consumption, satisfaction, economic activity inequality reduction, suggesting that Zakat plays a decisive role in stimulating local economic activity and potentially reducing poverty. Results also show distrust towards charitable organizations and government institutions that would diminish the role of Zakat in sustainable economic development and poverty reduction in the long run. This research contributes to the understanding of Zakat's socio-economic implications and aligns with Sustainable Development Goals (SDGs), emphasizing the role of partnerships in achieving poverty reduction and inequality reduction.