Note on the Optimal Size of Government

  • Ting Chao Chiung Michigan State University
Keywords: Government, Optimal Size, Efficiency, Minimum Tax, Budget Balance


Since  government  is  a  nonprofit  organization,  I  apply  firm
theory under zero profit condition to analyze the optimal size
of  government.  Government  should  minimize  short­run
average  cost  while  demand  for  public  service  is  equal  to
supply  of  public  service.  The  optimal  size  of  government
implies  (1)  tax  is  minimized  under  balance  budget  given
public service and (2) budget surplus and budget deficit are
inefficient (i.e., balance budget is Pareto optimum)


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