The Effect of Government Size on Economic Growth

Abstract

This paper tests the hypothesis that the impact of government expenditures on growth is initially positive but becomes weaker or even negative beyond some threshold of government size or level of development. The author's cross-country regression results support this proposition in that the impact of changes in government size is positive and significant both for low income countries and for countries with a low share of government expenditures in GDP while being negative for countries with a high share for government expenditures and negative and significant for high income countries.

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