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This study aims to look at the impact of zakat distribution on macroeconomic in Peninsula Malaysia by using OLS, 2-SLS and ECM analysis. This research is initially undertaken because many economists today believe that zakat does not influence the economy at the macro level because the zakat rate of 2.5 per cent is not significant. This issue has motivated us to conduct this study on the impact of zakat distribution in Malaysia.InMalaysia zakat is recognized as a fiscal tool whereby a rebate is given to income taxpayers who pay zakat. This study finds that zakat has a positive and significant relationship with economic growth, consumption andinvestment respectively. This means that an increase in the amount of zakat distribution will cause an increase in economic growth, consumption and investment. Lastly, the result of the ECM analysis shows that distribution of zakat have influence significant and positive impacts on economic growth. The long-run elasticity of the zakat variable is positive and significant.Empirical evidence in Malaysia support that zakat can influence economic growth, investment and consumption. Hence the Malaysian model of zakat administration and fiscal instrument can influence the economy at the macro level. Such fiscal policy can be applied in other countries
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