Government Size and Economic Growth in Iran With Emphasis

Government size plays a vital role in the economic development process. Therefore, in this study, the existence of a non-linear relationship between government size and economic growth was investigated using the two-sector production function developed by Ram (1986). The data, covering 44 years (1961-2005), were collected from the Iranian Economic Information Center. Two classification of government size are examined as threshold variables. The results indicated that current government size in Iran has passed over the optimal government size. Thus, the government expenditure share in gross domestic product should be decrease. Also the existence of a non-linear effectiveness of government size was recognized