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Effects of Saudi Arabia’s economic reforms: Insights from a DSGE model

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  • Blazquez, Jorge
  • Galeotti, Marzio
  • Manzano, Baltasar
  • Pierru, Axel
  • Pradhan, Shreekar

Abstract

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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  • Blazquez, Jorge & Galeotti, Marzio & Manzano, Baltasar & Pierru, Axel & Pradhan, Shreekar, 2021. "Effects of Saudi Arabia’s economic reforms: Insights from a DSGE model," Economic Modelling, Elsevier, vol. 95(C), pages 145-169.
    • Handle: RePEc:eee:ecmode:v:95:y:2021:i:c:p:145-169
    DOI: 10.1016/j.econmod.2020.12.004
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    4. Amiri, Hossein & Sayadi, Mohammad & Mamipour, Siab, 2021. "Oil Price Shocks and Macroeconomic Outcomes; Fresh Evidences from a scenario-based NK-DSGE analysis for oil-exporting countries," Resources Policy, Elsevier, vol. 74(C).
    5. Ernst, Anne & Hinterlang, Natascha & Mahle, Alexander & Stähler, Nikolai, 2022. "Carbon pricing, border adjustment and climate clubs: An assessment with EMuSe," Discussion Papers 25/2022, Deutsche Bundesbank.
    6. Mikhail Andreyev & Alyona Nelyubina, 2024. "Energy transition scenarios in Russia: effects in macroeconomic general equilibrium model with rational expectations," Bank of Russia Working Paper Series wps122, Bank of Russia.
    7. Mahfoudh Hussein Mgammal & Ebrahim Mohammed Al-Matari & Talal Fawzi Alruwaili, 2023. "Value-added-tax rate increases: A comparative study using difference-in-difference with an ARIMA modeling approach," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-17, December.
    8. Hinterlang, Natascha & Martin, Anika & Röhe, Oke & Stähler, Nikolai & Strobel, Johannes, 2021. "Using energy and emissions taxation to finance labor tax reductions in a multi-sector economy: An assessment with EMuSe," Discussion Papers 50/2021, Deutsche Bundesbank.
    9. Emanuele Ciola & Enrico Turco & Andrea Gurgone & Davide Bazzana & Sergio Vergalli & Francesco Menoncin, 2022. "Charging the macroeconomy with an energy sector: an agent-based model," Working Papers 2022.09, Fondazione Eni Enrico Mattei.
    10. Durand-Lasserve, Olivier, 2022. "Nationalization of the private sector labor force, quotas, matching and public jobs, an illustration with Saudi Arabia," The Quarterly Review of Economics and Finance, Elsevier, vol. 86(C), pages 98-117.
    11. Ciola, Emanuele & Turco, Enrico & Gurgone, Andrea & Bazzana, Davide & Vergalli, Sergio & Menoncin, Francesco, 2023. "Enter the MATRIX model:a Multi-Agent model for Transition Risks with application to energy shocks," Journal of Economic Dynamics and Control, Elsevier, vol. 146(C).
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    More about this item

    Keywords

    Saudi Arabia; Dynamic stochastic general equilibrium model; Vision 2030; Value added tax; Energy price reform; Renewable energy;
    All these keywords.

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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