مجلة الاقتصاد والمالية
Volume 12, Numéro 2, Pages 369-381
2026-06-01
Estimating Algeria’s Fiscal Reaction Function
Authors : Osmani Mokhtar . Afif Abdelhamid . Loucif Faycel .
Abstract
This research assesses government debt sustainability in Algeria using fiscal reaction functions over the period 1980–2023, based on annual data. The fiscal reaction function incorporates three explanatory variables: public debt, the output gap, and energy revenues as a share of GDP. The function is estimated using the Autoregressive Distributed Lag (ARDL) bounds testing approach, following unit root testing via the Phillips-Perron (PP) test. Findings reveal that the Algerian government counteracts rising public debt by adjusting its primary balance, though the response magnitude remains limited. Primary surpluses generated are modest relative to debt increases. Algeria's fiscal policy regarding oil and gas revenues demonstrates prudence and sustainability, with energy revenues being effectively allocated toward debt reduction and public investment. The study confirms a significant long-term relationship between primary balance and public debt, indicating fiscal authorities respond to debt accumulation through surplus generation, supporting sustainable debt management practices.
Keywords
fiscal sustainability, Fiscal Reaction Function, fiscal policy, primary balance, ARDL model.
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