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An Approach for Determining Optimum Size of Government (on the Basis of Governmentʹs Public Budget)

In line with the unprecedented development of public sector in the 20`h century, many economists have studied the efficiency of the public sector in economic growth and development. Evidently, one of the important aspects of these studies is to determine the optimum size of government whose theoretical principles and approaches as well as practical methods have been argued about in public sector economists forums. Although some studies relate fast economic growth of some countries including south east Asian countries to smallmess of government size, empirical studies do not approve this hypothesis and fundamentally the sectoral studies that form the bases of these results do not enjoy strong scientific and applicable principles. Many economists believe that wise leadership of the government combined with organized support of the private sector are assumed the economic growth engine especially in the mentioned group of countries. The experiences of successful countries such as south east Asian ones indicate that fast economic growth is often the product of an efficient government and entrepreneurial private sector. Barro holds that the increase of government expenditure first reinforces economic growth and later decreases it in a certain point. So the optimum size of government is a relative variable that is under the effect of economic parameters, administrative system and organizational efficiency. This paper uses an economic criterion for the optimum size of government, i.e. government expenditure productivity. This criterion can be estimated in the framework of the production theory and the econometeric model. The paper is composed of some parts. The first part is introduction. The second one discusses economic growth and its resources. The cyclic fluctuations of GDP and factors affecting them are introduced in this part. It also discusses some important theories regarding the relationship between the size of government and the amount of productivity and economic growth among world countries. The third part briefly talks about the subject matter literature and the experiences of the countries. The fourth part is dedicated to methodology of the model used and the applicational aspects. The fifth part explains estimation results and the final part contains summary, conclusions and policy recommendations.