IDEAS home Printed from https://ideas.repec.org/p/wbk/wbrwps/11193.html
   My bibliography  Save this paper

Fiscal Multipliers in Resource-Rich Economies : Evidence from the Gulf Countries

Author

Listed:
  • Chattha, Muhammad Khudadad
  • Kawalec, Tobias

Abstract

This paper utilizes the unique dynamics of fiscal budgeting in countries with a large hydro-carbon sector to estimate fiscal multipliers. The main identifying assumption rests on the idea that exogenously identified global hydrocarbon demand shocks can be considered plausible instruments for the fiscal space of countries in which that space is significantly dictated by hydrocarbon income, with such shocks being uncorrelated with non-hydrocarbon output at the same time. Using a local projection-instrumental variables (LP-IV) framework, the paper estimates that short-run fiscal expenditure multipliers to be in the ballpark of 0.1–0.4. In addition, the findings show that multipliers are at the upper end of this interval during recessions, indicating that fiscal policy in the Gulf countries is particularly effective during economic downturns.

Suggested Citation

  • Chattha, Muhammad Khudadad & Kawalec, Tobias, 2025. "Fiscal Multipliers in Resource-Rich Economies : Evidence from the Gulf Countries," Policy Research Working Paper Series 11193, The World Bank.
    • Handle: RePEc:wbk:wbrwps:11193
    as

    Download full text from publisher

    File URL: https://documents.worldbank.org/curated/en/099531408202540298/pdf/IDU-a5f01ba5-930b-4fc2-a7b5-682525a74825.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Alan J. Auerbach & Yuriy Gorodnichenko, 2012. "Measuring the Output Responses to Fiscal Policy," American Economic Journal: Economic Policy, American Economic Association, vol. 4(2), pages 1-27, May.
    2. Gordon, Robert J. & Krenn, Robert, 2010. "The End of the Great Depression 1939-41: Policy Contributions and Fiscal Multipliers," CEPR Discussion Papers 8034, C.E.P.R. Discussion Papers.
    3. Arthur Mendes & Steven Pennings, 2025. "One Rule Fits All? Heterogeneous Fiscal Rules for Commodity Exporters When Price Shocks Can Be Persistent: Theory and Evidence," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 55, January.
    4. Robert J. Gordon & Robert Krenn, 2010. "The End of the Great Depression 1939-41: Policy Contributions and Fiscal Multipliers," NBER Working Papers 16380, National Bureau of Economic Research, Inc.
    5. John C. Driscoll & Aart C. Kraay, 1998. "Consistent Covariance Matrix Estimation With Spatially Dependent Panel Data," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 549-560, November.
    6. Valerie A. Ramey, 2019. "Ten Years after the Financial Crisis: What Have We Learned from the Renaissance in Fiscal Research?," Journal of Economic Perspectives, American Economic Association, vol. 33(2), pages 89-114, Spring.
    7. repec:cdl:ucsdec:qt6cd687wc is not listed on IDEAS
    8. Jan Čapek & Jesús Crespo Cuaresma & Johannes Holler & Philip Schuster, 2022. "Fiscal multipliers in a small open economy: the case of Austria [The macroeconomic effects of fiscal policy in Portugal: a bayesian SVAR analysis]," Oxford Economic Papers, Oxford University Press, vol. 74(2), pages 412-430.
    9. Jos'e Luis Montiel Olea & Mikkel Plagborg-M{o}ller & Eric Qian & Christian K. Wolf, 2025. "Local Projections or VARs? A Primer for Macroeconomists," Papers 2503.17144, arXiv.org, revised May 2025.
    10. Roberto Perotti, 2005. "Estimating the effects of fiscal policy in OECD countries," Proceedings, Federal Reserve Bank of San Francisco.
    11. Alan J. Auerbach & Yuriy Gorodnichenko, 2013. "Corrigendum: Measuring the Output Responses to Fiscal Policy," American Economic Journal: Economic Policy, American Economic Association, vol. 5(3), pages 320-322, August.
    12. Lutz Kilian, 2009. "Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market," American Economic Review, American Economic Association, vol. 99(3), pages 1053-1069, June.
    13. José Luis Montiel Olea & Mikkel Plagborg-Møller & Eric Qian & Christian K. Wolf, 2025. "Local Projections or VARs? A Primer for Macroeconomists," NBER Chapters, in: NBER Macroeconomics Annual 2025, volume 40, National Bureau of Economic Research, Inc.
    14. Christiane Baumeister & James D. Hamilton, 2019. "Structural Interpretation of Vector Autoregressions with Incomplete Identification: Revisiting the Role of Oil Supply and Demand Shocks," American Economic Review, American Economic Association, vol. 109(5), pages 1873-1910, May.
    15. Diego R. Känzig, 2021. "The Macroeconomic Effects of Oil Supply News: Evidence from OPEC Announcements," American Economic Review, American Economic Association, vol. 111(4), pages 1092-1125, April.
    16. Lutz Kilian & Daniel P. Murphy, 2014. "The Role Of Inventories And Speculative Trading In The Global Market For Crude Oil," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 29(3), pages 454-478, April.
    17. repec:cdl:ucsdec:qt5mb353t2 is not listed on IDEAS
    18. Mikkel Plagborg‐Møller & Christian K. Wolf, 2021. "Local Projections and VARs Estimate the Same Impulse Responses," Econometrica, Econometric Society, vol. 89(2), pages 955-980, March.
    19. Ramey, V.A., 2016. "Macroeconomic Shocks and Their Propagation," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 71-162, Elsevier.
    20. Perotti, Roberto, 2005. "Estimating the Effects of Fiscal Policy in OECD Countries," CEPR Discussion Papers 4842, C.E.P.R. Discussion Papers.
    21. Soojin Jo, 2014. "The Effects of Oil Price Uncertainty on Global Real Economic Activity," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(6), pages 1113-1135, September.
    22. Olivier Blanchard & Roberto Perotti, 2002. "An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(4), pages 1329-1368.
    23. Abiad, Abdul & Qureshi, Irfan A., 2023. "The macroeconomic effects of oil price uncertainty," Energy Economics, Elsevier, vol. 125(C).
    24. Wael Hemrit & Noureddine Benlagha, 2018. "The impact of government spending on non-oil-GDP in Saudi Arabia (multiplier analysis)," International Journal of Economics and Business Research, Inderscience Enterprises Ltd, vol. 15(3), pages 350-372.
    25. Valerie A. Ramey & Sarah Zubairy, 2018. "Government Spending Multipliers in Good Times and in Bad: Evidence from US Historical Data," Journal of Political Economy, University of Chicago Press, vol. 126(2), pages 850-901.
    26. Fakhri J. Hasanov & Nader Alkathiri & Saad A. Alshahrani & Ryan Alyamani, 2022. "The impact of fiscal policy on non-oil GDP in Saudi Arabia," Applied Economics, Taylor & Francis Journals, vol. 54(7), pages 793-806, February.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Alloza, Mario & Burriel, Pablo & Pérez, Javier J., 2019. "Fiscal policies in the euro area: Revisiting the size of spillovers," Journal of Macroeconomics, Elsevier, vol. 61(C), pages 1-1.
    2. Marco Bernardini & Selien De Schryder & Gert Peersman, 2020. "Heterogeneous Government Spending Multipliers in the Era Surrounding the Great Recession," The Review of Economics and Statistics, MIT Press, vol. 102(2), pages 304-322, May.
    3. Jørgensen, Peter L. & Ravn, Søren H., 2022. "The inflation response to government spending shocks: A fiscal price puzzle?," European Economic Review, Elsevier, vol. 141(C).
    4. Andrea Boitani & Salvatore Perdichizzi & Chiara Punzo, 2022. "Nonlinearities and expenditure multipliers in the Eurozone [Tales of fiscal adjustment]," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 31(2), pages 552-575.
    5. Ghassibe, Mishel & Zanetti, Francesco, 2022. "State dependence of fiscal multipliers: the source of fluctuations matters," Journal of Monetary Economics, Elsevier, vol. 132(C), pages 1-23.
    6. Ethan Ilzetzki, 2024. "Learning by Necessity: Government Demand, Capacity Constraints, and Productivity Growth," American Economic Review, American Economic Association, vol. 114(8), pages 2436-2471, August.
    7. Ramey, V.A., 2016. "Macroeconomic Shocks and Their Propagation," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 71-162, Elsevier.
    8. Reljic, Jelena & Zezza, Francesco, 2025. "Breaking the divide: Can public spending on social infrastructure boost female employment in Italy?," Economic Modelling, Elsevier, vol. 143(C).
    9. Sebastian Gechert & Ansgar Rannenberg, 2014. "Are Fiscal Multipliers Regime-Dependent? A Meta Regression Analysis," IMK Working Paper 139-2014, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    10. Agata Szymańska, 2018. "Wpływ polityki fiskalnej na PKB w krajach Unii Europejskiej spoza strefy euro," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 3, pages 49-74.
    11. Tovar Jalles, João & Park, Donghyun & Qureshi, Irfan, 2024. "Public and Private Investment as Catalysts for Growth: An analysis of emerging markets and developing economies with a focus on Asia," Journal of International Money and Finance, Elsevier, vol. 148(C).
    12. Rabia Rafique & Asad Nisar & Syed Sadaqat Ali Shah, 2024. "Testing the effects of fiscal policy shocks on output growth in recession and expansion: empirical evidence from developing countries," Economic Change and Restructuring, Springer, vol. 57(3), pages 1-26, June.
    13. Kabundi,Alain Ntumba & Ohnsorge,Franziska Lieselotte, 2020. "Implications of Cheap Oil for Emerging Markets," Policy Research Working Paper Series 9403, The World Bank.
    14. Francesco Simone Lucidi, 2023. "The misalignment of fiscal multipliers in Italian regions," Regional Studies, Taylor & Francis Journals, vol. 57(10), pages 2073-2086, October.
    15. João Tovar Jalles & Donghyun Park & Irfan Qureshi, 2024. "Public versus Private Investment Multipliers in Emerging Market and Developing Economies: Cross-Country Analysis with a Focus on Asia," ADB Economics Working Paper Series 737, Asian Development Bank.
    16. Pascal Goemans, 2022. "Historical evidence for larger government spending multipliers in uncertain times than in slumps," Economic Inquiry, Western Economic Association International, vol. 60(3), pages 1164-1185, July.
    17. Sergio Destefanis & Mario Di Serio & Matteo Fragetta, 2022. "Regional multipliers across the Italian regions," Journal of Regional Science, Wiley Blackwell, vol. 62(4), pages 1179-1205, September.
    18. Holland, Marcio & Marçal, Emerson & de Prince, Diogo, 2020. "Is fiscal policy effective in Brazil? An empirical analysis," The Quarterly Review of Economics and Finance, Elsevier, vol. 75(C), pages 40-52.
    19. Simona Lorena Comi & Elena Cottini & Claudio Lucifora, 2020. "The effect of retirement on social relationships: new evidence from SHARE," DISCE - Working Papers del Dipartimento di Economia e Finanza def088, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    20. Kopecky, Joseph, 2022. "The age for austerity? Population age structure and fiscal consolidation multipliers," Journal of Macroeconomics, Elsevier, vol. 73(C).

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:11193. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Roula I. Yazigi (email available below). General contact details of provider: https://edirc.repec.org/data/dvewbus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.