August 3, 2009
MOST GOVERNMENTS ARE TOO LARGE
TO MAXIMIZE JOB CREATION AND ECONOMIC GROWTH
NEW STUDY FINDS
(Sofia, Bulgaria, August 3, 2009) A new study by economists with the Institute for Market Economics (IME)
in Sofia, Bulgaria, using the latest OECD data, finds that the government sectors in OECD (developed
countries) are too large relative to their private sectors to maximize economic growth. Economists have long
known that the government sector can be too small or too large to maximize economic growth, job creation, and
the social welfare of its citizens. Governments that do not adequately protect the people and their property and
the rule of law may be too small, while governments whose size and inefficiencies cause a misallocation of resources are too large.
Over the last several decades, economists have tried to determine and quantify the optimum size of government
(recognizing that not all governments and societies are the same). Most studies have shown the optimum size of government is between 12% and 30% of GDP. The new IME study, entitled The Optimum Size of Government, finds (using standard methodology) the government sector should be no larger than 25%
(and perhaps considerably smaller) to maximize GDP growth. All major governments, including the U.S., Germany, U.K., France, and Italy greatly exceed that level. The average government sector for
the OECD countries now exceeds 41% of GDP.
The results of the study indicate that policy makers who are enlarging their government sectors in the name of
"economic stimulus" are likely to be retarding the renewal of economic growth and job creation rather than enhancing it.
The study was sponsored by the non-partisan Center for Freedom and Prosperity Foundation in the
United States and the European Coalition for Economic Growth based in Vienna, Austria.
The entire study – The Optimum Size of Government - may be obtained from here along with a video which explains the study and its results.
Video: The Optimum Size of Government
Link to the study: http://ime.bg/en/articles/new-ime-study-the-optimum-size-of-government/
Link to the video: http://www.youtube.com/watch?v=aEtrjx2nztA
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