Human development index from the Islamic perspective: roles of taxation, zakah, and health and education expenditures

Abstract

This study analyzes the relationship between taxation, zakah, and health and education expenditure, and the Islamic Human Development Index (I-HDI). It further examines the relationship between these factors and the Human Development Index (HDI). We calculate I-HDI based on maqāṣid al-sharī'ah theory by combining material and non-material aspects and then compare it with HDI. The indicators used in the I-HDI calculation are based on the objectives that reflect a comprehensive human development. Employing the dynamic panel regression two-step Generalized Method of Moments on data from 34 provinces in Indonesia, this study finds a significant difference between the results of the HDI and I-HDI analyses. This study reveals that economic growth, health expenditure, and zakah improve HDI and I-HDI. Although educational expenditure improves I-HDI, it also has a negative effect on HDI. This research suggests that when formulating budget policies, the government should focus not only on material elements but also on non-material elements that are reflected in the I-HDI model.