Effect of financial repression in terms of elasticity on economic structure of public expenditure

Abstract EN

In several economies, the capital expenditure as a share of GDP has declined while current expenditure as a share of GDP has increased.

in the macroeconomic literature this is associated to the productivity rate decrease, which suggests an important role for financial investment.

however, Algeria like developing countries doesn’t seem to fulfil the financial development criteria.

in fact, capital expenditure decreases in a financial repression context.

facing increasing trend of current spending, this article attempts to find the impact of financial repression on economic structure of public spending in Algeria.

based on the public finances involvement theory in financial repression, two hypotheses are tested that financial repression determines the economic structure of public expenditures.

the results show that the financial repression elasticity of capital expenditure is negative, while that of current expenditure is positive.

the empirical linear regression analysis provides strong evidence that financial repression negatively affects the capital expenditures and positively the current expenditures.