The Optimal Size of Government in Egypt: An Empirical Investigation

The topic of the optimal government size has been extensively examined at both theoretical and empirical levels, however, it has not been researched for the Egyptian economy mainly due to the lack of consistent fiscal data over a relatively long period. Using time series dataset for the Egyptian economy over the time period from fiscal year 1981/1982 to fiscal year 2014/2015, this paper aims to test empirically whether there exists an optimal government size for Egypt, and to estimate that optimal size if it exists. Based on the two specifications of 'Scully model' and the 'quadratic equation model', the estimation results indicate that the relationship between the government size and economic growth in Egypt can be represented by the inverted U-shaped Armey curve. The estimated optimal size of government ranges from 30.5 to 31.2 percent of GDP indicating that the current size of Egypt's Government is neither too big nor too small from the perspective of economic growth maximisation.