This paper asks how, in an oil-exporting country with many foreign workers, increasing the domestic oil price can improve the welfare and the employment of nationals. We look at budget-neutral fiscal reforms where an increase in the price finances either cash transfers to households, wage subsidies for nationals, or cuts in the taxation of foreign workers. For each reform, we derive the optimal gap between the international and the domestic oil price. Subsidizing or taxing oil can correct current tax distortions that are due, in particular, to the taxation of foreign workers. We further illustrate this intuition with a model calibrated on Saudi Arabia for the year 2024.
