OPTIMAL SIZE OF GOVERNMENT SPENDING. THE CASE OF EUROPEAN UNION MEMBER STATES

Abstract

The theme of public expenditure has been of great interest in the latest years.Focusing on government size, role of government and the efficiency of the public sector becomes aneven more important issue nowadays when the financial crisis has covered severly almost alleconomies worlwide. The debate has as starting point the keynesian belief (state interventionovercomes recession periods) but also the division of the economy between the public and theprivate sector. Goods and services could be provided by the state, but many times the private sectorseems to be more efficient. Using a specific econometrical analysis, the authors try to establish theoptimal size of the public sector in both old and new member states of the European Union, a levelthat fosters economic growth and suggest that, following this point, GDP should be left in thehands of the private sector.Key-words: public expenditure, economic growth, optimum level, public sector