The Macroeconomic Effects of Fiscal Policy Shocks in Algeria: An Empirical Study

This paper focuses on the macroeconomic effects of fiscal policy shocks in Algeria using a Structural Vector Autoregression (SVAR) approach. We use annual data covering 1965-2007 period, the results of the study were as follows: A positive structural shock in the government expenditure will have a positive impact on the real GDP in the short term with very small multiplier, but in the medium and long term have a negative effect on real GDP; lead to important “crowding-out” effects, by impacting negatively on private investment; and have a persistent and positive effect on the price level, consumption and the average cost of financing. A positive structural shock in public revenue would have a positive impact on the size of government spending, the same effect by this shock to real GDP with very small multiplier; have a persistent and negative effect on the price level and the average cost of financing in the medium and long term. For the response of the components of real GDP, there is a positive influence on both the consumption and private investment. These results show that the expansion fiscal policies in Algeria have non-Keynesian effects result of generate crowding-out” effects, and this specification engender the relative ability to influence economic variables as we explicated in Variance decomposition, and therefore there is relative to the effectiveness of such policies in achieving the desired economic goals.