WHAT IS THE OPTIMUM SIZE OF GOVERNMENT: A SUGGESTION

Abstract

What is the optimum size of government? When the rule of law and the establishment of private property rights are taken into consideration, it is clear that the answer will not be at some 0%. On the other hand, when the experience of the old Soviet Union, East Germany and North Korea is considered, the answer will not be at some 100% either. Therefore, extreme points should not be the right answer. This study offers using normal distribution to answer this question. The study has revealed the following findings: (i) The total amount of public expenditures as % of GDP, a) is at minimum level at 4.55% rate, b) is at optimum level at 13.4% rate, c) is at maximum level at 31.7%. (ii) Thus, as a fiscal rule, countries should: a) choose the total amount of public expenditures as % of GDP ≤ 31.7% b) target 13.4%. (iii) Tree dimensional (3D) normal distribution demonstrates that a healthy market system could be built upon a healthy government system (iv) This approach rejects Wagner’s law. In a healthy growing economy, optimum government size could be kept at 13.4%. (v) The UK, the USA and the European countries have been in the Keynesian-Marxist area, which reduces their average growth.

Keywords

• public expenditure, economic growth, optimum level, public sector

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