Page 32 - Azerbaijan State University of Economics

THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE, V.82, # 2, 2025, pp. 32-60

REGIME-DEPENDENT EFFECTS OF PUBLIC SPENDING IN

ALGERIA: A STRUCTURAL VAR AND MARKOV-SWITCHING
APPROACH

Fatih CHELLAI

Ferhat Abbas University, Department of Basic Education, Sétif, Algeria
ORCID ID: 0000-0002-3249-846X, E-mail: [email protected];
[email protected]

https://doi.org/10.30546/jestp.2025.82.02.2007

Received: May 15; accepted October 30, 2025; published online December 16, 2025

ABSTRACT
Purpose - This study examines the macroeconomic effects of public spending in Algeria
between 2000 and 2023, focusing on its role in growth, inflation, and employment within
a resource-dependent economy. The research investigates how fiscal shocks, under
different economic regimes, shape Algeria’s structural vulnerabilities and development
trajectory. Design/methodology/approach – A Structural Vector Autoregressive (SVAR)
model is employed to identify and analyze the transmission of fiscal shocks on GDP,
inflation, and unemployment, with oil prices treated exogenously. To capture
nonlinearities and regime-dependent behaviors, a Markov-Switching VAR (MS-VAR)
framework complements the baseline model. Impulse response functions and variance
decomposition are used to assess dynamic interactions. Findings – Results indicate that
public spending generates short-term GDP gains, reduces unemployment, and induces
inflationary pressures, but these effects are highly contingent on oil revenues. Regime-
switching dynamics reveal that fiscal multipliers are stronger in stable periods and weaker
during volatile or crisis regimes. Algeria’s persistent exposure to high-volatility regimes
underscores structural fragility and fiscal dependence on hydrocarbons. Research
limitations/implications - The analysis is limited by annual data availability and the
specific modeling assumptions of SVAR/MS-VAR frameworks. Future studies could
integrate sectoral expenditure data and higher-frequency series to enrich the robustness of
findings. Practical implications – The findings stress the need for countercyclical fiscal
buffers, diversification of revenue sources, and governance reforms to reduce oil
dependency. Effective fiscal policy in Algeria requires adaptive frameworks that account
for regime shifts and external shocks. Originality/value – This study enriches the literature
on fiscal policy in rentier economies by combining SVAR and regime-switching
approaches, highlighting the state-contingent nature of fiscal multipliers. It provides
actionable insights for policymakers aiming to balance stabilization, growth, and
resilience in volatile economic environments.

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