The Asymmetric Impact of Oil Price Shocks on the Budget Deficit: Evidence from a Nonlinear Autoregressive Distributed Lag (NARDL) Model

Abstract

Fluctuations in oil prices present a significant challenge to fiscal stability in resource dependent emerging economies, as they directly influence fiscal policy and economic growth, while heightening the vulnerability of public finances—particularly in the face of recurring global shocks. In this context, the present study investigates the asymmetric effects of oil price shocks on Algeria’s fiscal deficit, considering the country's status as a rentier state heavily reliant on hydrocarbon revenues. Employing the Nonlinear Autoregressive Distributed Lag (NARDL) model for the period 1990–2023, the analysis reveals that negative oil price shocks have a substantial long-term impact, significantly widening the fiscal deficit, whereas positive shocks exert a relatively weaker effect. In the short term, however, the effects are symmetric and statistically insignificant. These findings highlight the urgent need for structural reforms, revenue diversification, and strengthened fiscal resilience to mitigate the risks associated with global market volatility.