Page 54 - Azerbaijan State University of Economics

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

is well-established for assessing fiscal impacts, as demonstrated in recent studies on budget
expenditures (Matveev & Sokolov, 2024).

The implications of this study's findings are manifold and of key importance to
Algerian policy-makers. If the study confirms a positive multiplier effect of public
spending on GDP in the short term, it suggests that the state can indeed use fiscal
policy as a tool for stabilizing and stimulating the economy, particularly in times of
slowdown. This conclusion is in line with Keynesian theories, which advocate state
intervention to support aggregate demand (Perotti, 2005). However, the long-run
effects of such spending are a critical consideration; recent research suggests that
while stimulative in the short term, the long-run growth dividends of government
spending are highly dependent on the efficiency and composition of that expenditure
(Antolin-Diaz & Surico, 2025). For Algeria, dependence on oil revenues introduces a
significant additional vulnerability. Oil price volatility, as demonstrated over the
period 2000-2023, can lead to sudden budget constraints, affecting the government's
ability to maintain stable and efficient spending levels. This highlights the need to
strengthen fiscal discipline and develop stabilization mechanisms to mitigate the
impact of external shocks (Mendoza, 1995).

With regard to inflationary pressures, if public spending generates significant
inflation, this could erode purchasing power and undermine macroeconomic stability.
It is therefore crucial to analyze the composition of spending and how it is financed.
Productive spending, such as investment in infrastructure or human capital, is less
likely to generate inflation in the long term than non-productive consumer spending.
Studies such as Nguyen's (2019) on emerging Asian economies have highlighted the
complexity of the relationship between public spending and inflation, underlining the
importance of prudent management. This is supported by findings that the
macroeconomic effects of fiscal policy are profoundly shaped by the efficiency of
public expenditure, advocating for reforms that prioritize high-quality spending over
sheer volume (Apeti, Bambe, & Combes, 2025). For Algeria, this means strategically
allocating funds to sectors with high growth potential and economic diversification,
thereby reducing dependence on hydrocarbons and promoting broader structural
transformation, a strategy also emphasized in recent analyses of small-state economies
such as Azerbaijan (Aliyev & Guliyeva, 2025).

Reducing unemployment in response to targeted spending is a major social and
economic objective. The results of the study should identify the types of public spending
that are most effective in creating jobs, whether through investment in education,
vocational training, or support for small and medium-sized enterprises. The experience
of other countries, as shown by Petrović et al. (2021) for emerging European economies,

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