Side Effects of Increasing Non-Oil Revenue in Net Oil-Exporting Countries : Empirical Evidence from Saudi Arabia

This research paper attempts to assess the impact of the economic reforms on the fiscal policy adopted recently by the Kingdom of Saudi Arabia (KSA), which aims to increase non-oil revenues and diversify the government income away from oil. To this end, a small-scale macroeconomic model comprising several econometric equations has been estimated using the OLS method over the period 1980-2019, to take into account numerous channels through which macroeconomic drivers can affect economic growth for the KSA’s economy.The results show that, on one hand, increasing non-oil revenue has led to a surge in government spending, which contributed, to a lesser extent, to boost total consumption and private investment. However, this continued rise in revenue, through cutting subsidies, implementing VAT, and introducing fees and taxes, has on the other hand put more pressure on the private sector and disposable income, starting to weaken the investment and consumption. These measures eventually could increase the cost of living as well as the cost of labor, which could delay the achievement of the vision 2030 goals, aiming to increase the non-oil export. Our findings revealed also that enhancing non-oil revenue would probably not offset its negative side effects, if the government is still aggressive with these types of policy reforms