Wealth inequality has been a core field of research in economics in the post-Global Financial Crisis era since it is an important driver of economic/financial crises and inhibits long-term growth. Compelling evidence indicates that wealth inequality has been increasing over and above income inequality but traditional theories of inequality lack in explaining the causes of such an increase in wealth inequality. This study shows that interest-based debt contracts may be the underlying cause of wealth inequality. The study discusses that asset-based redistribution, which targets the re-distribution of wealth through re-designation of financial contracts, has pronounced advantages over and above income-based re-distribution policies. The study also underlines that risksharing mechanisms are the building blocks of asset -based re-distribution policies. Stock-flow consistent modeling approach (SFCA) allows measuring comparative benefits of implementing risk-sharing asset-based redistribution policies compared to the base scenario of debt-based financialized economy. In this regard, a large SFCA macroeconomic model is constructed in order to measure comparative advantages of asset-based redistribution tools above that income-based redistribution tools. The results accentuate that an interest rate and debt-based economy goes to absolute inequality without policy interruption. The subsequent simulation gauge distributional effects of different set of fiscal policies. As per the simulation results, asset-based risk-sharing policies are much effective compared to income-based redistribution policies in taming the wealth inequality. Among others, GDP-linked sukuk and zakah should be taken seriously as important asset-based redistribution policy alternatives.

Increasing inequalities is one of the defining social, economic, and political challenges of the post-Global Financial Crisis (GFC) era. Apart from the negative social, public finance, and short-run growth effects of high inequality, the compelling evidence indicates that inequality is an important cause for the financial crises (Kumhof, Ranciere, and Winant 2015; Rajan 2010; de Haan and Sturm 2016; Turner 2016) and low long-term economic growth (World Economic Forum 2017; OECD 2015; IMF 2017). The inequality problem and its visible repercussions on economic growth and financial crises have spurred interest in the economics of inequality.