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Purpose: This study aims to analyze the potential of Zakat in distribution income policy and the causality relationship of Zakat income inequality and poverty. Design/Methodology/Approach: This study analyzes the causal relationship and the effect of Zakat, income inequality on poverty in 21 districts/cities of Aceh-Indonesia. To see the effect in the short and long term, time series analysis with Auto-Regressive Distributed Lag (ARDL) is used. The stages of the analysis test were carried out starting from the data stationarity test, optimal lag, cointegration test, and causality test. Findings: The estimation results show that in the long run, Zakat has a negative effect on poverty and income inequality has a positive effect on poverty. However, in the short run, both Zakat and income inequality do not affect poverty. Supported by the results of the causality test which shows that there is a one-way causal relationship between Zakat and poverty and Zakat with income inequality. Likewise, income inequality has a one-way causal relationship to poverty. Practical Implications: The findings of this research indicate that if the Zakat potential can be distributed optimally, then Zakat is the best policy solution to reduce poverty and income inequality. Originality/Value: The difference in this research from previous studies is to review the potential for Zakat that has become a regional policy in Aceh and to test it against poverty alleviation using the income inequality variable as a control variable. The analysis is strengthened by analyzing the causal relationship between the three variables.

Causality Relationship of Zakat, Income Inequality, and Poverty: A Panel Co-Integration Approach