| Abstract: | This paper estimates the optimal government size for several sets of economies by investigating the role of public services in the production process. I assume government services are optimally provided when their marginal product equals unity (the "Barro rule"). The empirical results suggest: (1) government services are significantly productive; (2) they are overprovided in Africa, underprovided in Asia, and optimally provided everywhere else; (3) 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 (4) the marginal productivity of government services is negatively related to government size. |
