Fiscal Multipliers in a Diversifying Economy: Comparing Government Consumption and Infrastructure Investment Effects on Non-Oil GDP in Saudi Arabia a Quarterly SVAR Analysis

Saudi Arabia’s Vision 2030 aims to diversify the economy away from oil by reallocating public expenditure from current consumption toward infrastructure mega-projects. This research estimates and compares the fiscal multipliers of government consumption and government investment on non-oil GDP using quarterly data from 2010Q2 to 2026Q1. A vector error correction model with Cholesky identification is employed alongside local projections to ensure robustness. Results indicate that the investment multiplier is substantially larger and more persistent than the consumption multiplier, reaching 2.34 after twelve quarters compared to 0.58 for consumption. A structural break analysis reveals that multipliers have increased markedly since 2016, with the eight-quarter investment multiplier rising from 1.24 pre-Vision 2030 to 2.61 thereafter. Variance decomposition confirms that government investment shocks explain over 27% of non-oil output fluctuations at longer horizons, independent of oil price movements. These findings provide empirical support for the strategic emphasis on capital formation under Vision 2030 and suggest that prioritising infrastructure investment over current expenditure yields superior growth dividends in a diversifying oil economy.