The Asymmetric Effects of Government Expenditure Shocks on Private Consumption: Evidence from Arab Resource-Rich Countries

Abstract

This paper aims to examine the asymmetric impact of government expenditure shocks on private consumption in Arab resource-rich countries, particularly the Gulf Cooperation Council countries (GCC), using the Nonlinear ARDL approach. Results of the study indicate a positive long-run impact of government expenditure shocks on private consumption in four GCC countries (Saudi Arabia, Kuwait, Qatar, and Oman) while a crowding-out effect is found in only one country (Bahrain). In addition, although we find a negative impact of remittance outflows on private consumption in most GCC countries, the positive effect of government expenditure outweighs the negative effect of remittance outflows. Besides, policymakers in GCC countries have to pay attention to the magnitude of expansionary and contractionary changes in fiscal policy as the impact of government expenditure shocks on private consumption is estimated to be asymmetric in the long run.