Does oil price spur public expenditures in Saudi Arabia, Kuwait and United Arab Emirates?

Abstract

This paper determines the dynamic linkage of oil price and public expenditures in Saudi Arabia, Kuwait and United Arab Emirates from 1991 to 2017. For this purpose, the study uses symmetric and asymmetric ARDL and Granger causality procedures. The results confirm the existence of asymmetric behaviour of oil price, which is a key factor that fiscal authorities used for the decision about public expenditures. Furthermore, the result reveals that the evidence of the Keynesian hypothesis is observed in United Arab Emirates. While Kuwait fits both theories at a time and also confirms Wagner's law only in Saudi Arabia. Moreover, the results support the spend‐and‐revenue hypothesis in Saudi Arabia and Kuwait while fiscal neutrality in United Arab Emirates. On the basis of conclusion, the study recommends that the government should re‐invest the surplus from oil receipt into other sectors of the economy on a priority basis that will reduce the negative effects of a decline in oil price.