Impact of the Hydrocarbon Sector on Public Spending in Algeria: An Econometric Analysis

Abstract The hydrocarbons sector constitutes the driving force of the Algerian economy. It is considered the main source of national revenue, ensuring the financing of expenditures across most strategic sectors. This article analyzes the impact of the hydrocarbons sector on the trends in public spending in Algeria from 1980 to 2023. The analysis relies on an econometric approach (the VECM model), which makes it possible to examine the short-term behavior of the variables as well as the long-term equilibrium dynamics. The results of the study reveal that oil taxation has a significant positive impact on public expenditures. In other words, an increase in fiscal revenues from the oil sector leads to higher public spending. Conversely, the relationship between hydrocarbon exports and public expenditures is negative. This suggests that an increase in exports does not immediately translate into higher public spending, due to the existence of budget stabilization mechanisms. The study also showed that oil price and exportation do not contribute to explaining the behavior of public expenditures either in the short term.