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The Optimal Government Size: Further International Evidence on the Productivity of Government Services

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  • Karras, Georgios

Abstract

This paper estimates the optimal government size for several sets of economies by investigating the role of public services in the production process. The author assumes government services are optimally provided when their marginal product equals unity (the 'Barro rule'). The empirical results suggest that government services are significantly productive; they are over provided in Africa, under provided in Asia, and optimally provided everywhere else; the optimal government size is 23 percent for the average country but ranges from 14 percent for the average OECD country to 33 percent in South America; and the marginal productivity of government services is negatively related to government size. Copyright 1996 by Oxford University Press.

Suggested Citation

  • Karras, Georgios, 1996. "The Optimal Government Size: Further International Evidence on the Productivity of Government Services," Economic Inquiry, Western Economic Association International, vol. 34(2), pages 193-203, April.
  • Handle: RePEc:oup:ecinqu:v:34:y:1996:i:2:p:193-203
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    Cited by:

    1. Mueller, Dennis C. & Stratmann, Thomas, 2003. "The economic effects of democratic participation," Journal of Public Economics, Elsevier, vol. 87(9-10), pages 2129-2155, September.
    2. Benos, Nikos, 2009. "Fiscal policy and economic growth: empirical evidence from EU countries," MPRA Paper 19174, University Library of Munich, Germany.
    3. Asimakopoulos, Stylianos & Karavias, Yiannis, 2016. "The impact of government size on economic growth: A threshold analysis," Economics Letters, Elsevier, vol. 139(C), pages 65-68.
    4. Ayal, Eliezer B. & Karras, Georgios, 1996. "Bureaucracy, investment, and growth," Economics Letters, Elsevier, vol. 51(2), pages 233-239, May.
    5. Mukherjee, Anit N., 2007. "Public expenditure on education: A review of selected issues and evidence," Working Papers hd1, National Institute of Public Finance and Policy.
    6. Barbara M. Fraumeni & Marshall B. Reinsdorf & Brooks B. Robinson & Matthew P. Williams, 2009. "Price and Real Output Measures for the Education Function of Government: Exploratory Estimates for Primary and Secondary Education," NBER Chapters,in: Price Index Concepts and Measurement, pages 373-403 National Bureau of Economic Research, Inc.
    7. Matti Virén & Erkki Koskela, 2000. "Is there a Laffer curve between aggregate output and public sector employment?," Empirical Economics, Springer, vol. 25(4), pages 605-621.
    8. Alleyne, K.A. & Lewis-Bynoe, D. & Moore, W., 2004. "An Assessment of the Growth-Enhancing Size of Government in the Caribbean," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 4(3).
    9. Bournakis, Ioannis & Tsoukis, Christopher, 2016. "Government size, institutions, and export performance among OECD economies," Economic Modelling, Elsevier, vol. 53(C), pages 37-47.
    10. Dzhumashev, Ratbek, 2014. "Corruption and growth: The role of governance, public spending, and economic development," Economic Modelling, Elsevier, vol. 37(C), pages 202-215.
    11. Gupta, Sanjeev & Verhoeven, Marijn, 2001. "The efficiency of government expenditure: experiences from Africa," Journal of Policy Modeling, Elsevier, vol. 23(4), pages 433-467, May.
    12. Barbara M. Fraumeni & Marshall B. Reinsdorf & Brooks B. Robinson & Matthew P. Williams, 2008. "Price and Real Output Measures for the Education Function of Government: Exploratory Estimates for Primary & Secondary Education," NBER Working Papers 14099, National Bureau of Economic Research, Inc.
    13. Hassan Aly & Mark Strazicich, 2000. "Is Government Size Optimal in the Gulf Countries of the Middle East? An empirical investigation," International Review of Applied Economics, Taylor & Francis Journals, vol. 14(4), pages 475-483.
    14. Facchini, François & Melki, Mickaël, 2013. "Efficient government size: France in the 20th century," European Journal of Political Economy, Elsevier, vol. 31(C), pages 1-14.
    15. Estache, A. & Gonzalez, M. & Trujillo, L., 2007. "Government expenditure on education, health and infrastructure: a naive look at levels, outcomes and efficiency," Working Papers 07/03, Department of Economics, City University London.
    16. Romano Piras, 2004. "Growth, Congestion of Public Goods, and Second-Best Optimal Policy," Working Papers 2004.5, Fondazione Eni Enrico Mattei.
    17. repec:exl:25engi:v:28:y:2017:i:2:p:155-161 is not listed on IDEAS
    18. Pelin Varol Iyidogan & Taner Turan, 2017. "Government Size and Economic Growth in Turkey: A Threshold Regression Analysis," Prague Economic Papers, University of Economics, Prague, vol. 2017(2), pages 142-154.
    19. Anwar, Sajid, 2005. "Specialisation-based external economies, supply of primary factors and government size," Journal of Economics and Business, Elsevier, vol. 57(3), pages 259-271.
    20. Dibeh, Ghassan, 2008. "Resources and the Political Economy of State Fragility in Conflict States: Iraq and Somalia," WIDER Working Paper Series 035, World Institute for Development Economic Research (UNU-WIDER).
    21. J. Stephen Ferris, 2010. "Fiscal Policy from a Public Choice Perspective," Carleton Economic Papers 10-10, Carleton University, Department of Economics.
    22. Ming Chung Chang & Shufen Wu, 2011. "Should Marginal Cost of Public Funds include the Revenue Effect?," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 147(I), pages 1-16, March.
    23. Ratbek Dzhumashev, 2014. "The Two-Way Relationship Between Government Spending And Corruption And Its Effects On Economic Growth," Contemporary Economic Policy, Western Economic Association International, vol. 32(2), pages 403-419, April.
    24. Dudley, Leonard & Montmarquette, Claude, 1999. "Le secteur public : moteur de croissance ou obstruction à l’industrie?," L'Actualité Economique, Société Canadienne de Science Economique, vol. 75(1), pages 357-377, mars-juin.

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