The impact of fiscal policy on economic activity over the business cycle : an empirical investigation in the case of Algeria

Abstract EN

This paper estimates the effects of fiscal policy on Algerian economic activity using a Markov Switching Vector Autoregressive (MSVAR) model.

We find evidence of asymmetric effects of fiscal policy across regimes, defined by the state of the business cycle (two situations: recession and boom).

The results show small positive government spending and revenue multipliers in the short term in both regimes.

In addition, fiscal policy shocks have a stronger impact in times of economic stress than in times of expansion, which confirm and consolidate the hypothesis of asymmetric effects.

However, the impact of government spending is stronger than the impact of public revenue in recession periods.

On the other hand, fiscal policy decision-makers interact with an Anti -Keynesian view (procyclical), as they raise revenue and expenditure in the case of boom and vice versa in the case of a recession.