Growth-maximizing government size: Evidence from Turkey

The aim of this thesis is to examine the relationship between government size and economic growth, which has been one of the most controversial issues in both theory and practice in economics/public finance literature. Our main objective is to test whether the inverted U-shaped relationship between the government size and economic growth is valid for Turkey for the period 1974-2016 by using various proxy measures for government size. In the thesis, using the ARDL bound test model, firstly the relationship between government size and economic growth is tested whether there exist inversed U-shaped and then optimal government size ratios are calculated. Empirical findings of the thesis provide strong and robust evidence for the existence of an inversed U-shaped long-run relationship between government size and economic growth, confirming the validity of the BARS curve. Additionally, the empirical results of the thesis revealed that all proxy measures for government size except the total central government budget expenditures and defense expenditures, are above the rate of optimal government size for the period examined. Therefore, it is expected that a decrease in the government size except these two indicators would increase the economic growth. Keywords: ARDL bound test, Economic Growth, Government Size, Turkey