An essay on optimal size of government: a case study of Pakistan

Abstract

Pakistan is a developing country and faces the problem of the fiscal deficit since government expenditures are higher than revenues. In this situation the government has to raise loans to cover this deficit and the burden of loans and debt service is increasing significantly. Additionally, most of the budget has gone to service the debt. Under these circumstances, this study is an attempt to find the optimal size of the government and compare it with the actual size of the government. To calculate the optimal threshold level of government spending, the methodology used by Heerden (2008) for Pakistan is adopted. Finally, this study provides a guide for policymakers, either to reduce or increase the size of governme.