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

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%.

Automated summary

Energy price reforms generate the largest long-term welfare gains among the three policy measures, while introducing a VAT and deploying renewable energy also bring about certain welfare benefits. However, the welfare effects of renewable energy deployment are sensitive to the selected financing scheme.