The role of public sector has expanded greatly in the course of the previous century. Basic state programs such as provision of basic public goods (welfare, law and order enforcements, administration etc.) were complemented by state programs in education (primary, secondary and tertiary), retirement programs and active role in economy by fiscal and monetary instruments. All of this has lead to an increase in public expenditure during the 20th century, from 10 – 15% to 40 – 50% of GDP in most developed and middle income countries. These high public expenditures demand high public revenues through taxes, which lowers incentives for economic activities and can lower savings which can be detrimental for economic growth in the long run. It does not mean that all public programs are unnecessary, but if there are inefficiencies within the public sector, a lot of public resources would be wasted.
The research summary can be downloaded here.