Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1697741835233.pdf (Georgia)
58 ЕКОНОМІКА ТА УПРАВЛІННЯ НАЦІОНАЛЬНИМ ГОСПОДАРСТВОМ ЕКОНОМІКА ТА УПРАВЛІННЯ НАЦІОНАЛЬНИМ ГОСПОДАРСТВОМ Sulkhan Tabaghua1 OPTIMAL SIZE OF GOVERNMENT AND ECONOMIC GROWTH: THE CASE OF GEORGIA This paper examines the relationship between government size and economic growth to esti- mate the optimal size of government in the case of Georgia.
The research provides empirical and theoretical insights about the importance of defining the optimal size of government, correlation between increasing/decreasing of the optimal size of government in the process of economic growth stimulation, along with analyzing causality between government size and economic growth, as well as the role of budget deficit.

Keywords: budget expenditures; budget revenues; government size; economic growth; Georgia.

Peer-reviewed, approved and placed: 17.03.2017.


Сулхан Табагуа ОПТИМАЛЬНИЙ РОЗМІР ДЕРЖАВИ ТА ЕКОНОМІЧНЕ ЗРОСТАННЯ: НА ПРИКЛАДІ ГРУЗІЇ У статті розглянуто залежність між розміром держави та економічним зростан- ням, оцінено оптимальний розмір держави на прикладі Грузії.

Запропоновано емпіричні та теоретичні ідеї стосовно важливості визначення оптимального розміру держави в проце- сі стимуляції економічного зростання.

Також проаналізовано причинний зв’язок між роз- міром держави та економічним зростанням.
Окремо визначено роль бюджетного дефіци- ту.

Ключові слова: бюджетні видатки; бюджетні надходження; розмір держави; економічне зростання; Грузія.

Форм.

5.

Рис.

3.

Табл.

1.

Літ.

48.

Сулхан Табагуа ОПТИМАЛЬНЫЙ РАЗМЕР ГОСУДАРСТВА И ЭКОНОМИЧЕСКИЙ РОСТ: НА ПРИМЕРЕ ГРУЗИИ В статье рассмотрена зависимость между размером государства и экономическим ростом и оценен его оптимальный размер на примере Грузии.
Предложены эмпирические и теоретические идеи о важности определения оптимального размера государства, опреде- лена корреляция между увеличением/уменьшением оптимального размера государства в процессе стимулирования экономического роста, также проанализирована причинная связь между размером государства и экономическим ростом.

Отдельно определена роль бюджетного дефицита.

Ключевые слова: бюджетные расходы; доходы бюджета; размер государства; экономиче- ский рост; Грузия.

Introduction.
Introduction.

The debate over the role of government in the economy has been lasting for many decades; it started in the time when laissez-faire and classical econ- omy policies dominated in society.

The Great Depression and publication of J.M.

Keynes book "General Theory of Employment, Interest and Money" (1936) radical- ly changed the economic thought.

After this book, J.M.

Keynes ideas have become the driving force of economic policies and set the scene for economic regulation.
However, agreement about this issue has not been reached yet.

In the historic and log- ical context, we may assume that without government or a state we will face anarchy in a society that will lead to extremely low productivity.

Establishment of government 1 * Ivane Javakhishvili Tbilisi State University, Georgia.

Paper was published in the framework of Shota Rustaveli National Science Foundation Grant (PhDF2016_104).
© Sulkhan Tabaghua, 2017 ЕКОНОМІКА ТА УПРАВЛІННЯ НАЦІОНАЛЬНИМ ГОСПОДАРСТВОМ ЕКОНОМІКА ТА УПРАВЛІННЯ НАЦІОНАЛЬНИМ ГОСПОДАРСТВОМ 59 to protect private property signiﬁcantly boosts economic progress, ensuring taxes are paid for further public expenditures.

The theory of economic growth plays an important role in modern macroeco- nomics.

One of the basic model of economic growth developed R.M.
Solow (1956) is based on the neoclassical growth theory approach, which has two important predic- tions about growth.

These predictions are that economic growth occurs as a result of exogenous technological change and that income per capita of countries converge.

Since it is presumed that all determinants of growth are exogenous, it is obvious that government policy cannot affect growth rates, except temporarily during the transi- tion of economies to their steady state.
Other growth models developed by R.E.

Lucas (1988), R.J. Barro (1989–1991), P.M. Romer (1994) which in essence constitute a new, endogenous growth theory, has caused that the view on the role of government in growth process changed.

According to this theory, both transition and steady state growth rates are endogenous, implying that also long-run economic growth rates are endogenous.

The impact of fiscal policy on economic growth is different for short- and long- run periods.
In the short run fiscal policy affects economic growth rate through changes in aggregate demand.

Fiscal policy that increases aggregate demand through an increase in government spending and/or decrease in taxes (increase of deficit) is called expansionary and can be used to stimulate low economic growth.

By contrast, fiscal policy is considered as contractionary if it reduces aggregate demand by lower- ing spending and/or increasing taxes.
If an expansionary fiscal policy is accommo- dated during the downturn (when potential output negatively deviates from its actual level) and contractionary fiscal policy is executed during the upturn (when potential output positively deviates from its actual level) fiscal policy is considered as counter- cyclical.

Thus, change in fiscal policy implies a compromise in the long- and short-run impact of GDP.
Namely, changes in fiscal policy that have positive effect on eco- nomic growth in short-run periods, have a negative effect on long-run economic growth.

The reason for this is considered to be the fact that expansionary fiscal poli- cy (raising government spending or tax rates decrease) in the short run lead to increased demand, which, in turn, increases income and output, as well as tax rev- enue.

However, not to the extent level that the increase in deficit could be neutralized.
Accordingly, this type of fiscal policy increases public debt, which reduces national savings and therefore also reduces output.

This type of negative change in fiscal poli- cy does not occur when changes in fiscal policy increase the aggregate demand in the short run, as well as has the positive impact on long-run economic growth, also neu- tralizing the negative effects of public debt increases.
In the process of analyzing the correlation between government size and eco- nomic growth the multiplier effect is of critical importance.

According to same stud- ies, increasing government size by 1% in the short run raises economic growth rate about 1%, and increase about 2–3% in the long term, as well as showing that tax mul- tiplier is higher than expenditures (Blanchard and Perotti, 2002).
In the research by R. Perotti (2004) the same model shows that multiplier effect is different for different countries in different time.
The multiplication effect is determined by the following factors: 1) the output effect of an increase in government consumption is larger in ACTUAL PROBLEMS OF ECONOMICS #7(193), 2017 ACTUAL PROBLEMS OF ECONOMICS #7(193), 2017 60 ЕКОНОМІКА ТА УПРАВЛІННЯ НАЦІОНАЛЬНИМ ГОСПОДАРСТВОМ ЕКОНОМІКА ТА УПРАВЛІННЯ НАЦІОНАЛЬНИМ ГОСПОДАРСТВОМ industrial than in developing countries; 2) fiscal multiplier is relatively large in economies operating under predetermined exchange rates but is zero in economies operating under flexible exchange rates; 3) fiscal multipliers in open economies are smaller than in closed ones; 4) fiscal multipliers in high-debt countries are negative (Ilzetzki et al., 2011).
The multiplier is high in the countries where government spending stimulates economy productivity (Baxter and King, 1993).

A study carried out in the case of the European Union show that in the period of the financial crisis, multiplier is higher than in other time (Blanchard and Leigh, 2013).

Fiscal transmis- sion mechanism plays an important role for assessing multiplier effect.

Because of this in contemporary conditions, the size of multiplier is much smaller than in tradition- al Keynesian theory.
In developing or developed countries, fiscal policy is often connected with increasing budget expenditure than decreasing tax rates.

However, fiscal stimulus causing changes in budget expenditures is linked to changes in the size of government (the share of budget expenditure in GDP).

This underlines the importance of assess- ing the impact of fiscal stimulus on economic growth using the government size model.
In recent years in Georgia, fiscal policy has been significantly changing, tax reform had a positive impact on the growth of tax revenues, thus stimulating govern- ment economic activities.

Because of this, we saw in a variety of directions an increase of budget expenditures (government size), which has not strong correlation with economic growth rate.

The growth rate of GDP and central government expen- ditures (% of GDP) over the period 2004–2015 are presented in Figure 1.
It seems that government expenditures in general were very stable and relatively low during the 2004–2006 years.

There was an increase after 2006, especially in 2015.

Although government revenues are relatively high and show stable growth starting with 2004.

Another important point is that government expenditures/revenues were low in 2004–2006, but the growth rates in those years are rather high.
This data also show that the level of government intervention in the market self- regulation system has increased significantly in Georgia.

In many cases, increase of government size caused bureaucratic purposes and its impact on economic growth may be minor and/or negative, reducing the size of government in the economy rais- es some questions because this is related to implementation of the same obligations as well.

Literature review.

1.

Government size indicator.


To analyze government size, a variety of indicators are used, namely: the share of government assets in the total national assets; the ratio of the number of people employed in this sector of the economy to the number of the employed in economy overall; the share of government investments in the country in total investments; the share of governmental expenditures in GDP; the share of budg- et revenues in GDP.
Earlier studies used government consumption for the analysis of government size (Cameron, 1982); government expenditure (Landau, 1983); general and social spending (Marlow, 1986; Saunders, 1986; 1988); shares of expenditures and revenues in GDP (Agell et al., 1997).
More recent research is evaluating the government size using total tax revenue and total spending (Folster and Henrekson, 2001; Agell et al., АКТУАЛЬНІ ПРОБЛЕМИ ЕКОНОМІКИ №7(193), 2017 АКТУАЛЬНІ ПРОБЛЕМИ ЕКОНОМІКИ №7(193), 2017 ЕКОНОМІКА ТА УПРАВЛІННЯ НАЦІОНАЛЬНИМ ГОСПОДАРСТВОМ ЕКОНОМІКА ТА УПРАВЛІННЯ НАЦІОНАЛЬНИМ ГОСПОДАРСТВОМ 61 24,15 26,95 31,11 34,09 30,22 31,73 27,49 30,4 27,46 31,96 26,02 30,91 26,42 28,28 27,64 26,97 26,7 28,89 6 5 , 5 8 , 2 6 , 4 4 , 3 4 , 6 2 , 7 2 , 6 4 , 2 6 , 2 1 22,13 25,13 4 , 9 6 , 9 16,95 21,91 15,1 17,61 8 , 5 12,53 15,47 ) s e r u t i d n e p x e ( e z i s t n e m n r e v o G ) s e u n e v e r ( e z i s t n e m n r e v o G 7 , 3 - , .
1 e r u g F i r o t a l f e d P D G e h t n o d e s a b , ) P D G l a e r f o e r a h s % s e r u t i d n e p x e / e u n e v e r t e g d u b d e t a d i l o s n o c ( a g r o e G i f o e c i f f O s c i t s i t a t S ACTUAL PROBLEMS OF ECONOMICS #7(193), 2017 ACTUAL PROBLEMS OF ECONOMICS #7(193), 2017 62 ЕКОНОМІКА ТА УПРАВЛІННЯ НАЦІОНАЛЬНИМ ГОСПОДАРСТВОМ ЕКОНОМІКА ТА УПРАВЛІННЯ НАЦІОНАЛЬНИМ ГОСПОДАРСТВОМ 2006; Colombier, 2009); total budget expenditure (Dar et al., 2002); total budget rev- enues and expenditures (Afonso and Davide, 2010; Bergh and Karlsson, 2010).
2.

Correlation between government size and economic growth.
Studies analyzing correlation between government size and economic growth can be divided into two groups: 1) researchers which underline nonlinear correlation (Landau, 1983, 1986; Barro, 1990; Engen and Skinner, 1992; Hansson and Henrekson, 1994; Folster and and Henrekson, 1999, 2001; Illarionov and Pivovarova, 2002; Dar and Khalkhali, 2002; Bergh and Karlsson, 2010); 2) researches which highlight linear correlation (Rubinson, 1977; Grossman, 1988; Colombier, 2009; Afonso and Davide, 2010).
In economic literature the necessity for government size increase is supported by the following two arguments: first, known as "Wagner law" according to which public revenue growth coefficient of government expenditure elasticity coefficient is more than 1, which leads to an increase in the size of government (Sachs and Larrain, 1993: 192–193); second – "Baumol cost disease" according to which government expendi- tures increase because salaries of state employees grow more than their productivity (Mutascu and Milos, 2009: 447).
Further we apply a well-known theoretical model to assess the relation between government size and economic growth originating from the Armey curve (Armey, 1995), which is often used in different research (Figure 2).

A B h t w o r g c i m o n o c E C Size of government Figure 2.
Armey curve (Armey, 1995) According to Armey curve, increasing government expenditures stimulate eco- nomic growth, firstly, higher rate (A) to the point when economic growth rate is at its maximum (B), on certain conditions government size (C)2, after this point increasing the size of government reduces the rate of economic growth due to the fact that gov- 2 C – same time represent optimal size of government.
АКТУАЛЬНІ ПРОБЛЕМИ ЕКОНОМІКИ №7(193), 2017 АКТУАЛЬНІ ПРОБЛЕМИ ЕКОНОМІКИ №7(193), 2017 ЕКОНОМІКА ТА УПРАВЛІННЯ НАЦІОНАЛЬНИМ ГОСПОДАРСТВОМ ЕКОНОМІКА ТА УПРАВЛІННЯ НАЦІОНАЛЬНИМ ГОСПОДАРСТВОМ 63 ernment expenditure are finessed by the tax, changes in tax policy reacting negative- ly by economic agents, which has negative influence on aggregate demand and macroeconomic equilibrium.
K. Vedder and E. Lowell Gallaway (1998) found that Armey curve peaks when the federal government spending is 17.45% (US, 1947–1997).

They reported that optimal government spending for Canada, Denmark, Italy, Sweden, the United Kingdom to be 21.37, 26.14, 22.23, 19.43 and 20.97% respectively and argued that Armey curve is detected, while optimal rates are smaller than the actual ones.
P. Pevcin (2005), using data from 12 European countries, calculated that the optimal size of general government is 36.56, 40.3 and 42.12%, also suggesting the optimal size of government to be 37.09, 42.90, 38.98, 45.96, 38.45, 42.28, 44.86 and 41.91% for Italy, France, Finland, Sweden, Germany, Ireland, Netherlands and Belgium respec- tively and concluding that the actual rates in those countries, except for Ireland, are greater than the optimal rates.
D. Chobanov and A. Mladenova (2009) analyzed data on 81 countries over the period of 1961–2005 to estimate that the optimal govern- ment consumption rate to be 10.8%.
F. Forte and C. Magazzino (2010), using differ- ent empirical specifications including the quadratic one and data for EU countries (1970 to 2009), estimated the optimal size of government for the EU countries and individually for 12 EU countries, also pointing out that significant differences among countries exist and the actual rates are greater than the estimated optimal ones.
M. Mutascu and M. Milos (2009), using data for the 1999–2008 period and non-lin- ear regressions, examined the optimal size of government in the 15 old and 12 new members of the European Union.

They found that the optimal government size is 30.42% for old member countries, while it is 27.46 for the new members and con- cluded that the actual rates are significantly greater than the optimal ones.

A few studies have focused on separate countries.


H. Mavrov (2007) studied the relation of government spending and economic growth in Bulgaria over the period 1990–2004 and estimated that the optimal size of government is 21.42%.

O.F.

Altunc and C. Aydin (2013), using data for the period of 1995–2011 found that optimal lev- els of 2 unless stated otherwise, all estimated optimal sizes expressed as share of GDP.
S. Herath (2012), for Sri Lankan data (1959 to 2009), calculated that the optimal amount of government expenditures is around 27% and argued that Armey curve is a reality for developing countries as well as developed ones.

M. Facchini and M. Melki (2013), using French data over the period of 1996–2008 and time series methods, indicate that the efficient government spending is around 30%.
Some studies exam- ine the relation between government size and economic growth by modifying the model suggested by R. Ram (1986) into a threshold regression model, such as in S.T.

Chen and C.C.

Lee (2005), E. Abounoori and Y. Nademi (2010) and H. Vaziri et al.

(2011).

S.T.

Chen and C.C.


Lee (2005), examining the presence of Armey curve in Taiwan using data for 1979:1–2003:3, estimated that the threshold levels for govern- ment total, consumption and investment expenditures are 22.84, 14.97 and 7.30% respectively and suggest that Armey curve holds.

E. Abounoori and Y. Nademi (2010), for Iran (1959–2006), found that the threshold levels of government total, consumption, and investment expenditures are 34.7, 23.6 and 8%.
They concluded that a nonlinear relationship between government size and economic growth exists in Iran.

H. Vaziri et al.

(2011), using data from 1960 to 2007 for Pakistan and Iran, ACTUAL PROBLEMS OF ECONOMICS #7(193), 2017 ACTUAL PROBLEMS OF ECONOMICS #7(193), 2017 64 ЕКОНОМІКА ТА УПРАВЛІННЯ НАЦІОНАЛЬНИМ ГОСПОДАРСТВОМ ЕКОНОМІКА ТА УПРАВЛІННЯ НАЦІОНАЛЬНИМ ГОСПОДАРСТВОМ detected a nonlinear relationship between government expenditure and economic growth and conclude that Armey curve is valid.
Based on this review of studies assessing the government role in economy, we can say that government's size in an economy is the main watershed between the repre- sentatives of different economic schools.

The aim of this paper is to find answers to the following highly important ques- tions: we need to increases or decreases the size of government for stimulation of eco- nomic growth?

Is there any correlation between government size and economic growth?
Is it possible to find the optimal size of government during which economic growth reaches its maximum rate?

Which indicator (total budget expenditure or rev- enue share of GDP) should we use for analyzing government size?

Methodology: Data and results.
For analyzing the correlation between govern- ment size and economic growth as well as to examine the optimal size of government, we use the neoclassical model, which describes macroeconomic equilibrium by the following equation: (1) The increase of government expenditure effects the economy in the following ways: a) decreasing the household disposable income-expenditure funding source by taxes; b) Decreasing consumer spending part of demand is satisfied by the service provided by government; c) increasing productivity of enterprises (government) sponsors research, promotes further training etc.
In other words, if government expenditure growth by one unit, households would saves by a units and production rate would increases by b unit.

If (a + b) > 1 the increase in government spending is reasonable.

The household may support increas- ing of governmental spending to the date until it reaches its critical value (a + b) = 1.

1.

Government size model.


Based on the abovementioned theoretical approach we can construct the following model: (2) where A – extensive growth parameters; Epx – government expenditure; Rev – gov- ernment revenue; K – capital formations.
Elasticity coefficients: a, b, l. For our main purpose, we use a double logarithmic model3: (3) With the 2002–2014 years’ quarterly data on Georgia the model (3) estimation would be as follows: (4) Based on the model we got the elasticity coefficient of budget revenues higher than budget expenditure, namely, increasing government expenditure by 1% reduces economic growth by 0.06%, increasing government revenue by 1% stimulates eco- 3 Based on R.J. Barro’s (1990) endogenous grow model.
АКТУАЛЬНІ ПРОБЛЕМИ ЕКОНОМІКИ №7(193), 2017 АКТУАЛЬНІ ПРОБЛЕМИ ЕКОНОМІКИ №7(193), 2017 ЕКОНОМІКА ТА УПРАВЛІННЯ НАЦІОНАЛЬНИМ ГОСПОДАРСТВОМ ЕКОНОМІКА ТА УПРАВЛІННЯ НАЦІОНАЛЬНИМ ГОСПОДАРСТВОМ 65 nomic growth by 0.21%; increasing capital formation by 1% stimulates economic growth of 0.30%.

As the statistics shows government expenditure, revenue, and capital formation play a significant role in economic growth.
For identifying the importance of these factors, we apply the standardized coefficients: These standardized and other statistical coefficients show that for government size budget revenues is more important than expenditures.

In the process of analyzing the correlation between government size and eco- nomic growth, also important is to find the optimal size of government ((a + b) = 1).

According to estimated date, the optimal size of government is equal to the 21% share of GDP revenues (Figure 3).
(5) Marginal product of government expenditure ---- Marginal product of government revenue Figure 3.

Marginal product of government expenditure and revenue, author’s The dictum "correlation does not imply causation" is so well known.

Yet, this does not stop untold numbers of social scientific studies from making causal claims based on simple regression analysis of non-experimental data with weak or no analy- sis of possible causal mechanisms.
With no additional information, regression analy- sis can only be used to estimate partial correlations between variables.

Analyzing the correlation between government size and economic growth regression model is not enough.

Therefore, we apply Granger causality testing the relationship between government size and economic growth as an illustration of the issues involved.

Table 1 shows the results of this test in the case of Georgia.
According to this test, zero hypothesis about increase government size does not show causally with economic growth.

Thus it is rejected in the lags 4, 5, 7, 8, 9, and accepted in case of two lags only.

On the other hand, the test of zero hypothesis about the increase of economic growth does not show causally with government size growth, and is accepted in case of lags 2, 4, 5, 9, and rejected in case of 8 and 7 lags.
ACTUAL PROBLEMS OF ECONOMICS #7(193), 2017 ACTUAL PROBLEMS OF ECONOMICS #7(193), 2017 66 ЕКОНОМІКА ТА УПРАВЛІННЯ НАЦІОНАЛЬНИМ ГОСПОДАРСТВОМ ЕКОНОМІКА ТА УПРАВЛІННЯ НАЦІОНАЛЬНИМ ГОСПОДАРСТВОМ .
0 1 4 .

0 d e t c e j e r s i s i s e h t o p y h o r e Z 3 0 0 .

0 d e t p e c c a s i s i s e h t o p y h o r e Z 5 0 - E .

2 d e t c e j e r s i s i s e h t o p y h o r e Z 4 0 .

0 d e t p e c c a s i s i s e h t o p y h o r e Z 5 0 - E .

3 d e t c e j e r s i s i s e h t o p y h o r e Z 2 0 .

0 d e t c e j e r s i s i s e h t o p y h o r e Z 6 0 0 0 .

0 d e t c e j e r s i s i s e h t o p y h o r e Z 8 8 0 0 .

0 d e t c e j e r s i s i s e h t o p y h o r e Z 0 7 0 0 .
.

0 9 0 .

0 2 4 5 7 8 9 8 8 .

2 7 5 5 9 8 .

0 1 7 7 5 8 .

4 3 2 4 3 .

0 1 6 2 0 7 6 .

2 0 4 0 0 0 .

9 9 7 2 2 0 .

3 6 0 7 3 9 .

5 7 8 2 3 7 .

3 7 8 2 3 7 .

3 4 9 1 5 1 .

3 7 8 2 3 7 .


 ’ r o h t u a , s t l u s e r t s e T y t i l a s u a C r e g n a r G .
% , r o t a c i d n i g a L s c i t s i t a t S - АКТУАЛЬНІ ПРОБЛЕМИ ЕКОНОМІКИ №7(193), 2017 АКТУАЛЬНІ ПРОБЛЕМИ ЕКОНОМІКИ №7(193), 2017 ЕКОНОМІКА ТА УПРАВЛІННЯ НАЦІОНАЛЬНИМ ГОСПОДАРСТВОМ ЕКОНОМІКА ТА УПРАВЛІННЯ НАЦІОНАЛЬНИМ ГОСПОДАРСТВОМ 67 Conclusion: 1.
We have examined the relationship between economic growth and expendi- tures to estimate the optimal size of government for Georgia.

The results of our sec- ond model specification show that for analyzing government size, we should use the share of total budget revenues in GDP rather than expenditure.
Ineffective budget expenditures reduce economic growth rates more than tax increases and taking into account all specifications of the model, the optimal size of government would be equal to 21% of Georgia’s GDP.

Since many studies have found that actual size of government is larger than the optimal one, our results are consistent with those find- ings.
Actual size of government was less than our estimated optimal size of govern- ment in 2000–2005 years, since 2006 and on the actual size of government is higher than our estimated one.

2.

The coefficient of elasticity shows that increasing government expenditures by 1% reduces economic growth by 0.06%, increasing government revenue by 1% and stimulating economic growth by 0.21%; increasing capital formation by 1% stimu- lates economic growth by 0.30%.

3.
3.

Causality between government size and economic growth exists.

4.

As we see in our models, budget revenue is a more important factor for the correlation between government size and economic growth than budget expenditures.
Based on this specific condition we can develop a hypothesis that "The role of budg- et deficit" is as follows: in the countries where budget deficit needs to finance expen- ditures which took place in the previous years, this fact reduces the importance of correlation between economic growth and government expenditure in the current year.
As for budget revenues, under the conditions of budget deficit the government needs to increase taxes in the current year for financing present and last year’s activ- ities.

Under Proficit and/or balanced budget, we should use budget expenditure for analyzing government size, including the case of Georgia4, where the role of budget revenue growth for government size is increasing.

5.
5.

As for policy proposals, our empirical findings clearly indicate that Georgian government should decrease its expenditures by a good amount to have an optimal or growth-maximizing size.

We think that decisions on the size and mix of government expenditures should be made with clear understanding of possible effects on the over- all economy and social welfare.
We think that if the observed increase in government expenditure continues in Georgia, its negative effects on growth might be stronger and more detrimental if this process will continue in the near future.

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