Fiscal Response to Fluctuating Oil Revenues in Oil Exporting Countries of the Middle East

Using panel data for five Middle Eastern oil-exporting countries, I have investigated the impact of fluctuations in these countries’ oil revenues on their budgetary decisions. My focus is on how revenue fluctuations are correlated with changes in the relative shares of various expenditure categories. The estimations revealed that the budget shares of Defense and Economic Affairs and Services were positively correlated to oil export revenues. Social expenditures, on the other hand, showed a negative correlation. These statistical results could imply that since social expenditures are politically more important, they are shielded against fluctuations in oil revenues. The burden of budget cuts fall more on capital expenditures and defense.