Page 45 - Azerbaijan State University of Economics

Fatih Chellai: Regime-Dependent Effects of Public Spending in Algeria: A Structural VAR and
Markov-Switching Approach

expected, as it is the variable from which the shock originates. Then, this impulse
gradually diminishes in subsequent periods, indicating a transitory effect: the fiscal
shock does not maintain a continuous expansionary spending dynamic, but gradually
dissipates from period 4 onwards.

Table 6: Impulse response functions of macroeconomic variables
Period GDP EXP INFLATION UNEMP
1 0.0000 0.0191 0.0118 0.1852
0.0000 0.0028 0.4313 0.2635
2 0.0028 0.0189 0.1455 0.3793
0.0024 0.0037 0.2266 0.2448
3 0.0051 0.0182 0.1957 0.4335
0.0034 0.0046 0.1872 0.2566
4 0.0067 0.0172 0.2062 0.4105
0.0039 0.0054 0.1477 0.2676
5 0.0079 0.0160 0.1960 0.3495
0.0040 0.0059 0.1270 0.2678
6 0.0085 0.0148 0.1757 0.2749
0.0041 0.0062 0.1165 0.2585
7 0.0087 0.0137 0.1518 0.2012
0.0042 0.0063 0.1084 0.2436
8 0.0087 0.0126 0.1281 0.1361
0.0042 0.0063 0.1001 0.2260
9 0.0084 0.0116 0.1068 0.0828
0.0042 0.0063 0.0914 0.2076
10 0.0080 0.0107 0.0886 0.0418
0.0042 0.0062 0.0829 0.1893
Source: By author

The response of real GDP is positive and increasing up to period 7, reaching a maximum
of around 0.0087, before stabilizing. This reflects a positive, albeit modest, multiplier
effect of public spending on economic activity. This behavior is consistent with
Keynesian theories in emerging economies, where public demand plays a driving role. In
the Algerian context, where the state remains the main investor and employer, a positive
shock to public spending stimulates production in the short and medium term. However,
the response remains weak, which could be explained by import dependency, structural
rigidities and the low level of diversification in the productive fabric.

45