HOW DOES THE DEVELOPMENT LEVEL OF COUNTRIES AFFECT OPTIMAL SIZE OF GOVERNMENT: AN EMPIRICAL STUDY WITH PANEL DATA ANALYSIS

The aim of this study is to clarify whether there is optimal government size; if there is, to determine whether it changes according to the development level of the countries. Estimations for these research questions were analyzed with the help of the Armey Curve. The economic growth rate was used as a dependent variable; while the annual public expenditure ratio in national income, gross fixed capital formation, unemployment rate were used as independent variables and additionally the effects of the 2008 Global Financial Crisis as a dummy variable. The data were obtained from the World Bank database. 21 countries' data for the period 1990-2019 were analyzed with AMG Panel Data. According to the findings obtained from the study; the existence of optimal public expenditure value has been confirmed in 18 countries except for Spain, Mexico, and Colombia. It has been observed that the optimal public size average is 30.67% in developed countries and 25.43% in developing countries. These results are consistent with Wagner's (1882) argument and Keynesian view. It is possible to say that as the development level of the countries increases, accordingly the public size within the economic structure increases.