ON THE OPTIMAL GOVERNMENT SIZE IN EUROPE - THEORY AND EMPIRICAL-EVIDENCE

The optimal government size for the representative European country is estimated by investigating the role of public services in the product ion process. The empirical results support the following conclusions: (i) government services are significantly productive; (ii) there is no evidence that government services (on average) are not optimally prov ided; (iii) the optimal government size is 16 per cent (+/-3 per cent) for the average ICP European country; (iv) the marginal productivity of government services may be negatively related to government size.