Causal Relationship Between Islamic Human Development Index, ZIS and Social Fiscal Policy on Poverty Reduction in Indonesia: Empirical Evidence
Abstract
Background: This study discusses the long-term and short-term causal relationship between the Islamic Human Development Index (IHDI), zakat (ZIS), and fiscal social policies on poverty alleviation in Indonesia using annual data from 1995-2024.
Method: The Vector Error Correction Model (VECM) framework is applied to capture balance adjustments, dynamic interactions, and delayed policy effects. The Johansen test confirms three cointegration vectors, which show a stable long-term relationship between poverty, human development, Islamic social finance, and fiscal instruments. Long-term estimates reveal that IHDI and ZIS significantly reduce poverty, suggesting that the expansion of Islamic redistribution capabilities and mechanisms operates as a structural driver of improved welfare. Health spending also shows significant long-term effects, while education and social assistance spending shows no meaningful impact, showing inefficiencies, mistargeting, or weak transformative capacity.
Results: Short-term results do not show a direct causal effect of IHDI, ZIS, or fiscal variables on poverty, reflecting that Indonesia's poverty dynamics are dominated by slow structural adjustments rather than short-term shocks. Granger causality shows a selective interaction, especially between ZIS and education spending, while variance decomposition confirms a strong autoregressive behavior of poverty, with external variables contributing minimally in the short term.
Conclusion: These findings underline that sustainable poverty alleviation requires long-term human resource development, strengthening zakat governance, and more effective and results-oriented fiscal strategies. The study provides empirical evidence supporting an integrated welfare framework that combines state fiscal policies with sharia social finance to achieve inclusive and sustainable poverty alleviation.
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