Do Islamic Banking Financial Instruments Achieve Equitable Income and Wealth Distribution?

The study investigates empirically whether the current practices of Sharīʿah-based financing contracts namely, Murabahah, Musharakah, Mudarabah, Istisna, Bai Bithaman Ajil, Ijarah and other contracts in the Malaysian Islamic banking industry achieved equitable income and wealth distribution. To do so, the study applied the bounds test and ARDL model to investigate the relationship between Sharīʿah-based financing contracts and Malaysian GINI coefficient index over the period from 1Q 2014 to 1Q 2019. In analyzing the long- and short-run implications, it was found that the practice of such Sharīʿah-based financing contracts in the Islamic banking industry achieved equitable income and wealth distribution in Malaysia using Murabahah, Mudarabah, Istisna, Bai Bithaman Ajil, and other (i.e., forward Ijarah) financing contracts. On the other hand, the findings indicated that Musharakah and Ijarah-based financing contract practices did not achieve equitable income and wealth distribution in Malaysia. This may be because the current practices of both contracts which seem to be handled as debts instruments and designed to the benefit of the banking sector only. To improve the Islamic banks’ financing practices in Malaysia, the outcomes of the study suggest that bank operators should strengthen the weight of Sharīʿah-based profit and loss sharing financing contracts with small and mid-size enterprises (SMEs) instead of corporations. In other words, Islamic banks are able to achieve fair income and wealth distribution and uphold the concept of justice for all by gradually increasing Musharakah-based financing for SMEs that can potentially grow and create economic value. Further, to solve the problem of Ijarah contract practices, Islamic banks must take steps to enhance the requirements of Ijarah contracts, specifically ownership transformation, maintenance responsibility, default penalty, and the issue of legal treatment as well as bear the costs, risks and rewards related to the leasing asset instead of borne by the clint. The empirical findings of the study will provide valuable input for banks policymakers, particularly central banks, and Islamic bank management to evaluate the current practice of Islamic finance and proactively correct shortcomings to achieve equitable wealth distribution. This study is a pioneering investigation that empirically evaluates whether the current practices of Islamic banking financial instruments achieve the aims of the equitable financial system, and ensure that Islamic banks, as intermediaries, address the issue of inequality and attain equitable wealth distribution worldwide.

Econophysics and the Entropic Foundations of Economics

This paper examines relations between econophysics and the law of entropy as foundations of economic phenomena. Ontological entropy, where actual thermodynamic processes are involved in the flow of energy from the Sun through the biosphere and economy, is distinguished from metaphorical entropy, where similar mathematics used for modeling entropy is employed to model economic phenomena. Areas considered include general equilibrium theory, growth theory, business cycles, ecological economics, urban–regional economics, income and wealth distribution, and financial market dynamics. The power-law distributions studied by econophysicists can reflect anti-entropic forces is emphasized to show how entropic and anti-entropic forces can interact to drive economic dynamics, such as in the interaction between business cycles, financial markets, and income distributions.

Research Insights: How Much Do We Trust Others in Latin America and the Caribbean?: The Role of Inequality and Perceptions

Inclusive growth requires high levels of trust, both among individuals and in institutions, and trust is shaped by a variety of factors, including the distribution of income and wealth. This is problematic when that distribution is not perceived as legitimate. Latin America and the Caribbean has traditionally been a highly unequal region. Inequality might be associated with lower trust because it reflects an unequal distribution of power, as those at the top can use the states coercive power to benefit themselves at the expense of others. Inequality nonetheless tends to be wrongly estimated, as most people do not accurately estimate their countrys income and wealth distribution, or their position within.

Income and Wealth Distribution in Macroeconomics: A Continuous-Time Approach

We recast the Aiyagari-Bewley-Huggett model of income and wealth distribution in continuous time. This workhorse model – as well as heterogeneous agent models more generally – then boils down to a system of partial differential equations, a fact we take advantage of to make two types of contributions. First, a number of new theoretical results: (i) an analytic characterization of the consumption and saving behavior of the poor, particularly their marginal propensities to consume; (ii) a closed-form solution for the wealth distribution in a special case with two income types; (iii) a proof that there is a unique stationary equilibrium if the intertemporal elasticity of substitution is weakly greater than one. Second, we develop a simple, efficient and portable algorithm for numerically solving for equilibria in a wide class of heterogeneous agent models, including – but not limited to – the Aiyagari-Bewley-Huggett model.

Effect of Savings on a Gas-Like Model Economy with Credit and Debt

In kinetic exchange models, agents make transactions based on well-established microscopic rules that give rise to macroscopic variables in analogy to statistical physics. These models have been applied to study processes such as income and wealth distribution, economic inequality sources, economic growth, etc., recovering well-known concepts in the economic literature. In this work, we apply ensemble formalism to a geometric agents model to study the effect of saving propensity in a system with money, credit, and debt. We calculate the partition function to obtain the total money of the system, with which we give an interpretation of the economic temperature in terms of the different payment methods available to the agents. We observe an interplay between the fraction of money that agents can save and their maximum debt. The system’s entropy increases as a function of the saved proportion, and increases even more when there is debt.

Neo-globalization Revisited: The Contours of a New Global Economic Order

<p>Disruption induces disequilibrium. Today’s global economy is the case in point. Powerful sources of disruption are undermining classic premises of global economic equilibrium and, in the process, changing the contours of the world economy. Long cherished globalization premises of free market, open economy, small government, private initiative, and deregulation are being challenged. Sources of this challenge are numerous. There are government and corporate debt, extreme individualism, high industry concentration, slanted income and wealth distribution, self-serving industry practices, and above all self-centered trade policies.</p><p>What has gone wrong and is there a way out of this dark environment is the focus of this article. The article addresses the need and premises of a Neo-globalization. It addressed, as a point of start, the failures of the existing paradigm and moves on to address premises for a Neo-globalization.</p>

Economic Growth with Social Status, Spirit of Capitalism, and Conspicuous Consumption

The purpose of this study is to introduce social status, conspicuous consumption, and spirit of capitalism into neoclassical growth model. This paper studies a dynamic interdependence between economic growth, economic structural change, income and wealth distribution, social status, conspicuous consumption, and spirit of capitalism in a small-open economy. We build a heterogeneous-households growth model with endogenous wealth accumulation and social status. The dynamics of J-households economy is described by J differential equations. We simulate the motion of the model with three groups of households. We carry out comparative dynamic analysis with regard to some parameters.

Effective Tax Rates by Income and Wealth Class

We use the Survey of Consumer Finances (SCF) from 1995 through 2016 to study trends in average effective tax rates across the income and wealth distribution. These average tax rates (ATRs) calculated from SCF income data are comparable to those calculated from external sources. We show that the wealthiest families have the highest ATRs, even as the income definition expands to include nontaxable sources and even though the wealthiest families are only sometimes among those with the highest annual income. However, the majority of income-producing assets held by the wealthiest are in the form of unrealized capital gains, effectively avoiding taxation. After altering the income concept to a measure of “potential income,” which incorporates changes in net worth and allows us to include untaxed increases in asset values, the wealthiest families no longer have the highest ATRs.

Social Class, Work-Related Incomes, and Socio-Economic Polarization in Europe, 2005–2014

Sociologists and economists have typically focused on different dimensions of socio-economic inequalities. Sociologists have been mainly concerned with occupational and educational indicators, whereas economists have focused on the earnings, income, and wealth distribution. The article integrates sociological and economics’ approaches to the study of socio-economic inequalities, by providing an analysis of the relationship between social class and work-related income, and its distribution, in Europe in the period between 2005 and 2014. Europe as a whole and its eight major countries are studied with the European Union Statistics on Income and Living Conditions (EU-Silc) data. Changes in the income hierarchy among classes are discussed in the framework of the occupational upgrading and polarization hypotheses. The results of our analyses suggest that, first, the capacity of the concept of social class to describe and summarize the different distribution of individual market-related income is stable or increasing in Europe. Second, in the 10 years considered there has been a ‘fanning out’ of the class income hierarchy. With reference to upper social class, the increase in the income gap has been stronger for the self-employed and the routine workers. Finally, there is also evidence of a mix of occupational upgrading and polarization. The empirical results, in particular, are consistent with the predictions of the skill-biased technological change hypothesis.