Redistribution Adjusts Efficiency in Economy: Islamic Paradigm

Objective – Islam regulate distribution also redistribution of wealth, and how this concept break away the inefficiency of economic activity. The concept of redistribution has always been a debate in every microeconomics discussion in various areas, such as its mechanism, its implementation and also its effect on the efficiency of economy. This research is trying to examine how the concept of redistribution benefits the efficiency in economy through partial equilibrium analysis. The literature on the concept of Islamic paradigm and the positive paradigm are managed to produce a comprehensive study. Methodology/Technique – This study was conducted using research methods of literature studies, both of textbooks and handbooks in the same fields of studies. The simulation case applied on zakat implementation in adjusting new equilibrium of supply and demand, and also on taxation and subsidy to get the comparison view. Findings – It is found that there is a different equilibrium adjustment between zakat implementation and taxation implementation, under assumption of first best optimal distribution economy. However, zakat implementation will not lead inefficiency in economy, because the shifts of demand and supply curve result the larger amount of quantity of product in the same price level. Novelty – Taxation and subsidy mechanism will lead inefficiency in economy, because the shifts of supply and demand curve result the smaller amount of quantity of product in the higher level of price. Type of Paper: Review