WHAT IS THE OPTIMUM SIZE OF GOVERNMENT: A SUGGESTION

Year 2011, Volume: 3 Issue: 1, 45 - 54, 01.06.2011

Aykut Ekinci

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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