Investigating the impact of CAP on consumption and MPC of Saudi beneficiaries

Abstract EN

Since 2017, Saudi Arabia government adopted several reforms to minimize the side effects of implementing new fiscal policies such as energy price increases and the introduction of new taxation system (VAT).

The Citizen’s Account Program (CAP) is one way to achieve this objective as cash transfer program that directed to minimize the side effects of implementing these policies.

In this paper, following Keynesian theory and Shapiro & Slemrod (2003) model, we investigate how consumption and income can be affected directly by implementing new fiscal policies.

By using data from Saudi Family Income and Expenditure Survey (FIES), this paper estimate households’ marginal propensity to consume (MPC) and examine how the propensity differs with income and find that CAP benefit derived Saudi households to spent an average of 20-halala for each one-riyal received.

This paper is an attempt to determine how Saudi consumers adjust their consumption to income changes generated by subsidy, as well as understanding which economic models are more consistent with the consumption adjustments observed in the data.

Empirically, we find that Saudi consumers would allocate on average 19.5%, 25.5% and 16.8% of the additional income to non-durables, semi-durable goods and services respectively.

These findings corroborate with the theoretical prediction and empirical results from other countries