Government Expenditure and Quality of Life

Most of the empirical work on the optimal size of the fiscal state has linked the level of taxation to economic growth. In this paper the level of government consumption expenditure that yields the maximum physical quality of life is found, along with those expenditures that cause equality between marginal benefit and marginal government expenditure out of GNP. Careful attention is paid to the measurement of the physical quality of life, the weighing of the attributes in the construction of an aggregate index of quality of life, and in the functional (parametric) form of the nonlinear equations utilized to calculate marginal benefit. The conclusion of the paper is that government consumption expenditure is considerably higher than is necessary to maximize the physical quality of life, and that a reduction in government consumption expenditure would not lower quality of life.