Dynamic Interlinkages Between Zakat Collection, Poverty Reduction, and Sustainable Development Goals: Evidence from Indonesia Using Panel Vector Autoregression (PVAR) and System GMM Approach

Abstract

This study investigates the dynamic interlinkages between zakat collection, poverty reduction, and Sustainable Development Goals (SDGs) in Indonesia, the world's largest Muslim-majority country. By employing Panel Vector Autoregression (PVAR) and System Generalized Method of Moments (System GMM) methodologies on panel data from 2010 to 2023, the research captures bidirectional causality and feedback effects among zakat collection, poverty indicators, and SDG progress. Results demonstrate that increased zakat collection substantially reduces poverty rates and indirectly supports SDG achievement, particularly through improved education, healthcare access, economic growth, and reduced inequalities. The impulse response analysis reveals immediate and sustained poverty reduction following zakat interventions, emphasizing zakat's unique role as both a charitable and systemic instrument for inclusive development policy. However, institutional efficiency, governance, and beneficiary targeting remain critical to optimizing zakat’s long-term impact. This research suggests integrating zakat within holistic national development frameworks and highlights its potential as an innovative Islamic social finance tool for bridging the SDG funding gap, offering valuable insights for policymakers in Indonesia and other Muslim-majority countries.