The Size and Composition of Government Spending in Europe and its Impact on Well-Being

37 Pages Posted: 19 Jul 2010

See all articles by Zohal Hessami

Zohal Hessami

University of Konstanz, Department of Economics


This paper empirically analyzes whether large governments in Europe reflect efficient responses to a changing social and economic environment (‘welfare economic view’) as opposed to wasteful spending (‘public choice view’). To this end, the effect of government size on subjective well-being is estimated in a combined survey and country-level dataset covering 153,268 respondents from twelve EU countries over the 1990–2000 period. The first finding is an inversely U-shaped relationship between government size and well-being. In addition, the analysis suggests that given the high institutional quality as compared to other parts of the world there might be scope for a further enlargement of governments in the EU from a well-being perspective. However, one must acknowledge that the effect on well-being may be quite small and that democratic societies in Europe have no experience with even larger governments. The investigation also reveals that the impact of government size on well-being depends negatively on levels of corruption and positively on the extent of decentralization. Moreover, left-wing voters and low-income earners are the main beneficiaries of a large public sector. Finally, in all twelve EU countries included in the sample higher levels of well-being could have been achieved by allocating a higher share of public resources to education, while Finland and Germany could have given an additional boost to well-being by cutting expenditures on social protection.

Suggested Citation

Hessami, Zohal, The Size and Composition of Government Spending in Europe and its Impact on Well-Being. Kyklos, Vol. 63, Issue 3, pp. 346-382, August 2010, Available at SSRN: or

Zohal Hessami (Contact Author)

University of Konstanz, Department of Economics ( email )

Box 138
Konstanz, 78457

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