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Role of Oil Price in Fiscal Cyclicality in Saudi Arabia

Author

Listed:
  • Tarek Tawfik Yousef Alkhateeb

    (Department of Finance, College of Business Administration, Prince Sattam Bin Abdulaziz University, Alkharj, Saudi Arabia,)

  • Haider Mahmood

    (Department of Finance, College of Business Administration, Prince Sattam Bin Abdulaziz University, Alkharj, Saudi Arabia,)

  • Zafar Ahmad Sultan

    (Department of Economics, L.S. College, Muzaffarpur, B.R.A. Bihar University, Muzaffarpur, India.)

Abstract

Testing cyclicality of fiscal policy is pertinent in any country to observe its type of cyclicality with the business cycle. In the oil abundant economy, oil price and trade openness may also play a role in determining the fiscal policy cyclicality. This research probes the role of economic growth, trade openness, and oil price on government consumption growth to verify the type of cyclicality in Saudi Arabia from 1971 to 2018. The cointegration test of Pesaran (2001) is utilized to test the cyclicality hypothesis with augmented critical bound statistics developed by Kripfganz and Schneider (2019). We corroborate the long and short-run relationships in the fiscal model of Saudi Arabia. Further, procyclicality is proved in the long run and countercyclicality is corroborated in the short run with a one-year lag effect. Moreover, government revenue has a positive effect on expenditure. However, oil prices and trade openness could not affect government spending.

Suggested Citation

  • Tarek Tawfik Yousef Alkhateeb & Haider Mahmood & Zafar Ahmad Sultan, 2021. "Role of Oil Price in Fiscal Cyclicality in Saudi Arabia," International Journal of Energy Economics and Policy, Econjournals, vol. 11(2), pages 194-198.
    • Handle: RePEc:eco:journ2:2021-02-25
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    References listed on IDEAS

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    2. Philippe Aghion & Ioana Marinescu, 2008. "Cyclical Budgetary Policy and Economic Growth: What Do We Learn from OECD Panel Data?," NBER Chapters, in: NBER Macroeconomics Annual 2007, Volume 22, pages 251-278, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Mahmood, Haider & Chaudhary, A. R., 2013. "Impact of FDI on Income Inequality in Pakistan," MPRA Paper 109460, University Library of Munich, Germany.
    2. Haider Mahmood, 2021. "Oil Price and Industrial Growth in Saudi Arabia: Sectoral and Asymmetry Analyses," International Journal of Energy Economics and Policy, Econjournals, vol. 11(3), pages 7-13.
    3. Jayson Beckman & Getachew Nigatu, 2021. "Do Political Factors Influence U.S. Crude Oil Imports?," International Journal of Energy Economics and Policy, Econjournals, vol. 11(4), pages 288-297.
    4. Haider Mahmood & Shafiqul Hassan & Muhammad Tanveer & Abdul-Rahim Ahmad, 2022. "The Effects of Rule of Law, Regulatory Quality, and Renewable Energy on CO2 Emissions in South Asia," International Journal of Energy Economics and Policy, Econjournals, vol. 12(6), pages 16-21, November.

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    More about this item

    Keywords

    Fiscal Cyclicality; oil price; trade openness; government consumption; economic growth;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • P33 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - International Trade, Finance, Investment, Relations, and Aid
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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