Empirical Estimation of Fiscal Multipliers in MENA Oil-Exporting Countries with an Application to Algeria

At a time when Algeria must undertake considerable fiscal consolidation to restore sustainability, the issueof fiscal multipliers has come to the fore. This paper estimates short-term and long-term fiscal multipliersfor Algeria applying several econometric methodologies, including Local Projection Methodology andVector Autoregressive Models, and using both Algeria-specific and panel data. The paper also exploresasymmetries related to the sign of the output gap as well as the direction of spending. The results suggestthat (i) average fiscal multipliers for Algeria are generally moderate and below unity; (ii) the impact ofpublic spending shocks is more important when the output gap is negative; (iii) fiscal spending multipliersare significantly larger during spending contraction than expansion; (iv) procyclicality in public spendingdoes not appear to affect output, except for capital spending cuts when the output gap is negative; and(v) while multipliers associated with countercyclical public spending can be sizeable, a contraction incurrent spending does not materially affect non-oil GDP