Salman Ahmed Shaikh
Posted May 17, 2013 by Hayat Canada
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It is an empirical observation that people desire to have smooth consumption through their lifetimes. Lifecycle income hypothesis and permanent income hypothesis try to explain that in microeconomic foundation based theories. Both negate the Keynes assertion that average propensity to consume (APC) falls as income rises. Microeconomic evidence is also consistent with lifecycle income hypothesis in various empirical studies in the literature.
In this article, we try to explain how consumption smoothing is achieved and supported in an Islamic economy through a set of institutions and behavioral norms given that people want to spend their lifetime resources fairly equally through their lifetimes.