The Effect of Government Size on Economic Growth by Emphasizing on Army Curve: A Case Study in Iran

This article reviews the relationship between the government spending and economic growth and by estimating the optimal size of government tries to examine the relationship between government size and economic growth in Iran and analyze the presence and shape of the ArmyCurve. It is expected that the results obtained in the context of Iran could be of relevance to other developing countries or at least to those with similar economic structure or size. Moreover, this study performs an empirical test of popular phenomenon of the Armey curve using a time series and data set during 1964-2006 in Iran. The results show that the relationship between government size and economic growth, in the long term and short-term, is positive and non-linear. It is also found that the current size is larger than the size of government optimal in long-term and short term. It is necessary to decrease the size of government.