When Religion Shapes Redistribution: Islamic Economic Provisions and Income Inequality

This paper investigates the relationship between Islamic economic provisions and income inequality, contributing to the growing literature on the institutional determinants of inequality. While inequality research has traditionally focused on structural factors—such as globalization, technological change, and welfare regimes—much less attention has been paid to the role of religious and constitutional institutions. This study addresses this gap by compiling a novel global dataset on Islamic economic constitutional provisions, including the prohibition of interest (riba), the institutionalization of almsgiving through zakat and waqf, and broader references to the “Islamic economy.” The dataset spans 1,574 country-year observations and is linked to multiple measures of income distribution: the Gini index and income shares of the bottom 50 percent, middle 40 percent, top 10 percent, and top 1 percent.
Using multilevel regression models with extensive controls for economic development, trade openness, oil dependence, democracy, social protection spending, and institutional quality (rule of law, constitutional respect, and religious rights), the results demonstrate that concrete Islamic economic provisions are associated with more egalitarian distributions of income. Specifically, constitutional prohibitions of interest are significantly correlated with lower Gini coefficients, higher income shares for the bottom and middle groups, and a reduction in the concentration of income at the top 10 percent and top 1 percent. Likewise, provisions institutionalizing zakat and waqf are linked to reduced inequality, confirming the redistributive potential of faith-based welfare mechanisms.
In contrast, symbolic constitutional references to an “Islamic economy” without concrete redistributive institutions appear to have regressive effects. These provisions are associated with rising income shares for the top deciles and declining shares for the bottom 50 and middle 40 percent, suggesting that rhetorical invocations of Islamic economics may serve elite interests rather than promote equity. Importantly, the models yield high explanatory power, with conditional R² values ranging from 0.78 to 0.86, underscoring that both economic fundamentals and institutional design shape inequality outcomes.
By introducing Islamic economic provisions into the comparative inequality literature, this study suggests that inequality research must look beyond conventional economic and political determinants to consider how normative commitments embedded in constitutions can translate into measurable socio-economic outcomes. More broadly, the results highlight the importance of institutional specificity: redistributive mechanisms embedded in law can mitigate inequality, while vague/symbolic provisions may exacerbate it. This duality provides a new lens for inequality scholars to understand the complex ways in which law and religion intersect in shaping global patterns of income distribution.