Page 56 - Azerbaijan State University of Economics

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

Moreover, inflationary pressures observed in 2022–2023 — partly driven by imported
inflation and local monetary-fiscal interactions - highlight the limitations of using
public expenditure as a blunt instrument without complementary reforms in monetary
and supply-side policies. As global economic fragmentation and climate transition
policies reshape investment flows and trade dynamics, Algeria’s ability to use fiscal
policy as a developmental lever will increasingly depend on diversifying its economic
base and building fiscal buffers.

In this respect, the creation of a sovereign wealth fund, fiscal rules to delink spending
from oil prices, and public investment efficiency audits are key policy recommendations
emerging from this research.

Finally, the sensitivity of the Algerian economy to oil price shocks is a constant. Policy
recommendations should include robust economic diversification strategies, the creation
of oil revenue stabilization funds, and improved transparency and efficiency in budget
management. The aim is to build a more resilient economy, capable of absorbing external
shocks without compromising macroeconomic stability and long-term development. The
implementation of structural reforms, such as those aimed at improving the business
climate and attracting private investment, would also be essential to complement the
action of public spending and foster more inclusive and sustainable growth.

CONCLUSION
This study offers a rigorous empirical assessment of the macroeconomic effects of
public spending in Algeria from 2000 to 2023, combining the SVAR framework with
a Markov-Switching VAR approach to capture regime-dependent dynamics. While
the SVAR model isolates structural fiscal shocks, the MS-VAR enriches the analysis
by revealing how identical policy interventions yield divergent outcomes across
sTable and volatile regimes. This non-linear perspective highlights that Algeria's
fiscal transmission mechanisms are deeply state-contingent, shaped by external
shocks, oil price fluctuations, and institutional rigidities. The findings confirm that
while public spending can foster short-term growth under stability, it becomes less
effective—and even destabilizing—under conditions of macroeconomic fragility.
These results support a shift from static fiscal rules toward adaptive, evidence-based
strategies that account for structural breaks and uncertainty. The study thus advances
the current empirical literature on fiscal policy in resource-rich developing economies,
offering nuanced insights that underscore the imperative of diversification, counter-
cyclical buffers, and institutional reform. For Algerian policymakers, the implications
are clear: sustainable and inclusive growth requires a resilient fiscal framework
attuned to the country’s volatility-prone environment.

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