Economic Research and Perspectives

Economic Research and Perspectives

Social Security System Layers and Islamic Economic Justice with Special Emphasis on Takaful

Authors
Hamidreza Naeb Khosroshahi 1
Mohammadreza Nahidi Amirkhiz 2
Mohammadali Motafakker Azad 3
Seyyed Ali Paytakhti Oskooe 4
1 Ph.D. Candidate in Economics, Faculty of Management and Economics, Azad University of Tabriz, Tabriz, Iran
2 Assistant Professor of Economics, Faculty of Management and Economics, Azad University of Tabriz, Tabriz, Iran
3 Professor of Economics, Faculty of Economics and Management, Tabriz University, Tabriz, Iran
4 Associate Professor of Economics, Faculty of Management and Economics, Azad University of Tabriz, Tabriz, Iran
10.22034/24.3.229
Abstract
Introduction

Economic development is one of the main goals of all countries, and most scientists believe that development is only accessible if there is equality. For this reason, despite the differences and contradictions in schools and societies, the issue of inequality and especially economic inequality has been always a vital concern of economists and policymakers all over the world. Meanwhile, since justice is one of the fundamental goals of Islam, Islamic economists have a more scrutinizing and much clear vision of equality. Apart from the importance of economic equality in Islam, it has a cucial role in social security systems and equality concepts as well. Takaful insurance, is a widely used Islamic model in insurance risk coverage which has fundamental differences with conventional insurance mechanisms. Takaful is cooperative, not profit oriented, and fully allined and complied with Islamic rules and regulations. This study is aiming at investigating the effect of various layers of social security system on Islamic-economic equality in the Iranian provinces during 2008-2021. GMM prediction model is applied for predicting the effect of Takaful on inequality and directing houshold religious expenses towards Takaful insurance.

Methodology

According to previous theoretical and experimental literature, economic inequality can be affected by inequality in previous years. Therefore, in this study a dynamic econometric method is used to include the lagged dependant variable as one of the explanatory variables. In general, if a variable depends on vaiables of previous periods, among other independent ones, it is better to use a dynamic panel data model. Generalized method of moments is one of the common and widely used dynamic approaches. The reason for the popularity of this method is that it is very flexible and requires only some weak assumptions. Therefore, Generalized Method of Moments (GMM) greatly solves the problems of static panel data methods related to autocorrelation, variance heterogeneity, and skewness. The reason for using this method is that, firstly, there is a possibility that the current dependent variable is affected by the lagged variables, and secondly, since one of the ways to control the endogeneity of variables is to use instrumental variable and due to the fact that it is very difficult to find such an instrument, it is possible to use lagged variables as appropriate instruments applying GMM estimator.

Findings

The results of this research indicate that the inequality of the previous period has a positive and significant relationship with current economic inequality in all three models. This means that high inequality in the previous period causes high inequality in the current period. Moreover, consistent with some studies, GDP has a positive and significant relationship with economic inequality. It means that an increase in GDP is associated with increased inequality. This result indicates that in Iran, there is no antipoverty growth. Inflation rate has also a negative relationship with inequality in all models, and this relationship is significant in two models. Following some previous studies, this result can be interpreted as the negative relationship can be caused by the fact that the inflation of luxury goods is higher than the inflation of essential goods and therefore, increased inflation is more detrimental to the rich. In addition, all three layers of social assistance, basic social insurance, and supplementary social insurance significantly reduce inequality. Meanwhile, basic social insurance has the greatest effect, and social assistance has the least effect on reducing inequality. In addition, based on the results, it can be stated that by directing houshold religious expenses towards Takaful insurance, which is an Islamic insurance and a type of basic social insurance, it is possible to reduce Islamic-Economic inequality in 2023 and 2024. The amounts of the decreases are predicted to be a minimum of 0.31 and 0.25 (Chahar Mahal and Bakhtiari) and a maximum of 5.95 and 5.91 (Markazi).

Discussion and Conclusion

According to the results, investing in all three layers of social security can lead to a reduction in inequality. Therefore, it is suggested not to ignore any layer in policymaking. Due to the greater impact of basic insurance on equality, it is thought to consider it as the basic layer of social security and focus on this layer to reduce inequality more. Managers and policymakers can also focus on Takaful as one of the basic types of insurance and help to provide Islamic-Economic equality by directing houshold religious expenses towards Takaful. Moreover, it is suggested that the governmental plans should be based on combining economic growth with improved welfare and income distribution which is one of the main goals of the Islamic economy. It is also suggested that the religious and cultural officials should create the necessary explanation and enlightenment related to Takaful and social responsibility of people. The government responsiblity in creating a foundation and guiding people to fulfill their social responsibility by strengthening and developing Zakat headquarters and communicating with social security organization should not be underestimated.
Keywords
Economic Inequality
Generalized Method of Moments
Iran Economy
Social Security
Takaful

Subjects

The Quran
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Economic Research and Perspectives
Volume 24, Issue 3
Autumn 2024
Pages 229-254