: 10.56472/25835238/IRJEMS-V5I4P117
Iyad A. Al-Nsour. "The Impact of Oil Price Fluctuations on Government Spending in Saudi Arabia between 1999–2026" International Research Journal of Economics and Management Studies, Vol. 5, No. 4, pp. 136-147, 2026. Crossref. http://doi.org/10.56472/25835238/IRJEMS-V5I4P117
This study examines the relationship between oil prices and government expenditure, with a focus on both short-run and long-run dynamics, as well as the asymmetric effects of oil price shocks. The study employs annual time-series data covering the specified period and adopts an econometric framework based on the Autoregressive Distributed Lag (ARDL) model, given its suitability for small samples and mixed orders of integration. Before estimation, unit root tests (ADF) were conducted to determine the stationarity properties of the variables, followed by the Bounds test to examine the existence of a long-run relationship. In addition, Johansen cointegration and diagnostic tests were applied to ensure the robustness and validity of the model. The empirical results reveal a long-run equilibrium relationship between oil prices and government expenditure, indicating that fiscal policy remains strongly linked to oil revenue dynamics. In the long run, increases in oil prices are associated with higher levels of government spending, while cumulative declines in oil prices exert a negative impact, reflecting the sensitivity of public finances to adverse oil shocks. In the short run, the findings indicate an asymmetric response of government expenditure to oil price changes. Negative oil price shocks were found to have a stronger and more immediate effect compared to positive shocks, while the overall response of fiscal policy exhibits a degree of delay. This suggests that fiscal adjustments are more reactive to revenue shortfalls than to revenue increases. Furthermore, overall, the study concludes the central role of oil prices in shaping government expenditure and underscores the importance of adopting more resilient and counter-cyclical fiscal policies. These findings are particularly relevant for oil-dependent economies such as Saudi Arabia, where reducing reliance on oil revenues remains a key policy objective.
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Oil Price, Fluctuations, Government Spending, 2030 Vision, Saudi Arabia.