DGE Model for Assessing Macro-Fiscal Vulnerabilities in Algeria

Abstract

In this paper, we present a Dynamic General Equilibrium (DGE) model to address the macro-fiscal vulnerabilities and the effects of fiscal policy on growth and employment in Algeria. We first discuss a baseline scenario throughout the projection period, 2021-2040 and then conduct several experiments; an increase in the efficiency of public spending on infrastructure investment, a gradual reduction in the share of non-interest government spending in GDP, the same gradual reduction in spending with a permanent increase in the share of investment in infrastructure in total noninterest government expenditure, and a composite fiscal reform program, respectively. The results show that with a well-designed fiscal program, there may be no trade-off between fiscal consolidation and economic growth.