Influence of fiscal policy on GDP: an empirical study of GCC countries

Abstract

The Gulf Cooperation Council (GCC) countries of late have made considerable attempts to achieve financial consolidation. However, this was limited to cuts in government expenditures. While scholars suggest the need for overall fiscal policy adjustments, countries should pay particular attention to efficient revenue generation and public debt management. In this paper, an attempt has been made to examine public finance of the GCC countries. The study has taken into account four significant components of public finance: public revenue, inflation, government expenditure and public debt. The co-integration rank test using the vector auto-regression method is employed to determine whether the chosen variables play any influential role in the GDP of the GCC economies. The results suggest that the effect of the consumer price inflation, total government revenue, revenue (percent of non-oil), and total government gross debt have a strong influence on the GDP of these economies. Thus, this means that the countries in the GCC region should focus on inflation, revenue, and public debt to have robust, viable and comprehensive development.