The Optimal Growth Rate of Government's Expenditure: Dynamic Optimal Control Theory

Increase in government spending can lead to increase in production, supply of public goods and services and utility. But it should be noted that increasing the role of government in the economy caused ejection of the private sector and this will reduce the utility.In the present study, weve been looking for Iran's growth rate of government's Spending using time series data in the years 1978-2014. Via a dynamic Optimal control approach and the maximum principle.According to the findings, the optimal growth rate of government expenditure is 7% and the main factors affecting the government expenditure rate is the ratio of private and public sector investment. Therefore, the current growth rate of government spending is not optimal and the government needs to control the growth rate of spending.