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Theories explaining government size and its consequences are of two varieties. The first portrays government as a provider of public goods and a corrector of externalities. The second associates larger governments with bureaucratic inefficiency and special-interest-group influence. What distinguishes these alternatives is that only in the former is governmental expansion generally associated with an increase in social welfare. In the latter, the link between government size and public goods provision (or social welfare) is negative. We study the empirical significance of these competing claims by examining the relationship between government size and a particular public good, namely environmental quality (notably, air quality measured by SO2 concentrations), for 42 countries over the period 1971–1996. We find that the relationship is negative, even after accounting for the quality of government (quality of bureaucracy and the level of corruption). This result may not prove conclusively that the growth of government has been driven by factors other than concern for the public good, but it creates a presumption against the theory of government size that emphasizes public good provision.

Are bigger governments better providers of public goods? Evidence from air pollution