This study examines fiscal policy effectiveness in Algeria’s resource-dependent economy over 1990–2023, employing Autoregressive Distributed Lag (ARDL) bounds testing methodology. We analyze how institutional constraints and oil price volatility affect fiscal-growth dynamics in a hydrocarbon-dependent context, contributing to fiscal policy literature in resource-rich developing economies. Our analysis reveals systematic procyclical fiscal patterns, with government spending increasing 4.6% for each 10% terms-of-trade improvement, reflecting immediate resource rent consumption rather than intertemporal smoothing. The ARDL approach accommodates mixed integration orders while capturing short-run adjustments and long-run equilibrium relationships. Empirical results demonstrate significant cointegration with bounds test F-statistic (15.49) exceeding critical values at 1% significance. The error correction coefficient violates stability bounds, indicating structural breaks across Algeria’s boom-bust cycles that single-regime models cannot accommodate—a significant limitation. Critically, while short-run fiscal interventions correlate with temporary growth responses, long-run fiscal multipliers prove statistically insignificant, suggesting institutional weaknesses and oil revenue volatility are associated with limited sustained policy effectiveness. Results challenge conventional assumptions about fiscal policy effectiveness in resource-dependent contexts. Algeria’s recent 60% spending increases during 2021–2023 exemplify systematic procyclical patterns that may not deliver sustainable growth benefits, highlighting economic diversification priorities over demand-side interventions.
Sehli et al. (Sat,) studied this question.
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