We use a quadratic form in the key spending variables to estimate optimal government spending, using World Value Survey data covering 78 countries. We found that the average of total public spending for countries of good public governance, at 36.45% of GDP, is almost identical to the average of estimates of optimal public spending at 36.49%. However, significant over-spending or under-spending is found for individual countries. Optimal spending on both healthcare and that for education increase with population aging. Spending on education is found to reduce optimal healthcare spending. Per capita GDP increases optimal healthcare spending but reduces optimal education spending as a percentage of GDP. An alternative, “iterative” approach to estimating optimal government spending found similar optimal spending levels, lending credibility to the results. Interestingly, we also found that within the sample of countries with public governance below median, the highest subjective well-being is highest for those with the least public spending, which is around 18% of the GDP.
Ho L. S., & Ng Y. K. (2016). Happiness and government: The role of public spending and public governance (CPPS Working Papers Series no.197). Retrieved from Lingnan University website: http://commons.ln.edu.hk/cppswp/97/