The financial aspects of the government budget and its impact on the economy in Saudi Arabia.

The overall aim of this thesis is to measure the impact of government budget expenditure on the economy and to provide a basis through which such expenditure can be used as an effective tool in economic policy. The choice of Saudi Arabia as a case study is made because it is a representative sample of countries which rely on a single source of income to finance their development. This objective is achieved through several stages of the research. The project begins with the discussion of the theory of public finance and how it applies to the Saudi situation. This has been made after a brief highlighting of the specific characteristics of the Saudi economy. The methodology choice has been made after a thorough discussion of the relevant literature, especially those concerned with the impact of government expenditures. The macroeconomic effect of government expenditure has been analysed by a model specifically constructed for this purpose. This has been empirically tested and the findings are discussed. More detailed analysis of these expenditure impacts have been made by employing input-output analysis. The advantage of such an approach is that it traces the effect of expenditure to the micro (sectoral) level. Such exposure provides more relevant information to decision-makers because it provides an insight as to how the macro effects are generated and what the consequences of different patterns of allocation on the different constituents of the economy are. Finally, based upon the findings of this study and the current economic climate prevailing in the country, several suggestions and policy remarks are made.