Effects of Saudi Arabia’s economic reforms: Insights from a DSGE model
UNIVERSAL IDENTIFIER: http://hdl.handle.net/11093/2744
UNESCO SUBJECT: 5312.05 Energía ; 5902.08 Política del Medio Ambiente ; 5301 Política Fiscal y Hacienda Publica Nacionales
DOCUMENT TYPE: article
Saudi Arabia’s Vision 2030 includes the creation of a value-added tax (VAT), the enactment of domestic energy price reforms, and the deployment of renewable energy. We assess these policy measures’ effects on macroeconomic variables using a dynamic general equilibrium model of the Saudi economy. We find that energy price reforms deliver long-run welfare gains that are more than 20% of current consumption, the greatest among the three measures. Introducing a VAT generates welfare gains of up to 4.3% of current consumption. The welfare effects of renewable energy deployment are sensitive to the selected financing scheme. If financing for renewables comes from a reduction in government consumption or transfers to households, no welfare gains are realized. Jointly implementing all three policies increases real gross domestic product (GDP) by 5%, reduces real non-oil GDP by up to 1.8%, and increases welfare by 23.5%–32.4%.
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