The Effect of Redistributive Policies on Saving and Capital Accumulation: An Overlapping Generations Approach

Justice is known as one of the most important principles of any economic system and pursuing other objectives such as efficiency and economic growth should go along with achieving justice. In Islamic economics, redistributive justice as a kind of justice can be achieved through obligatory and voluntary charities or through government subsidies. In this study, we generalize two-period overlapping generations model by entering the Islamic guidelines for redistribution in this model and examine the economic impact of redistributive behavior by analyzing the model in Islamic economics framework. The results show that an increase in redistributive behavior that emerges in the form of in Infaq (Transfer payment), has a positive impact on saving and capital accumulation and therefore is consistent with economic growth. So, one optimal approach for implementation of redistributive justice is to encourage people to Infaq and voluntary donations.