Estimation of Optimal Government Size for Economic Growth: Armey Curve Application

This study, assuming a balanced budget, attempts to estimate the optimal size of devolved government expenditure in 47 Kenyan counties using the panel ARDL regression and Scully (2008) model for the period 2014-2018. The estimation model examined Armey’s idea of a quadratic curve that explains the level of government expenditure in an economy and the corresponding level of economic growth. The panel ARDL series analysis reveals that devolved government size is optimized when county expenditures stand at 9.7% of GCP (Gross County Product). The estimated threshold size is higher than the current size of county government in Kenya. The low level of devolved government size in counties reflects the low level of economic activities in Counties. This study therefore recommends that county governments should increase its spending budget on infrastructure, social and economic activities to 9.7% of GCP to stimulate overall county economic growth.