Small government or big government?

Mateo Spaho

European University of Tirana, Faculty of Economics, Finance and Banking

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Abstract:

Since the beginning of the twentieth century, economists and philosophers were polarizedon their positions beyond the role that the government should have in the economy.

On one hand John Maynard Keynes represented, within the optics of market economy, a position where the state should intervene in the economy to maintain the aggregate demand and the employment in the country, without hesitation in creating budget deficits and public debt expansion. This approach happens especially in the moments when the domestic economy and global economic trends show a weak growth or a recession. This means a heavy interference  inthe economy, with higher income but with high expenditure to GDP too.

On the other side, Liberals and Neoliberalsled by Friedrich Hayek advocated a withdrawal of the government from economic activity not just in moments of economic growth but also during the crisis, believing that the market has self-regulating mechanisms within itself. The government, as a result will have a smaller dimension with lower income and also low expenditures compared to the GDP of the country.

We took the South-Eastern Europe countries distinguishing those with a “Big Government” or countries with “Small Government”. There are analyzed the economic performances during the global crisis (2007-2014). In which countries the public debt grew less? Which country managed to attract more investments and which were the countries that preserved the purchasing power of their consumers?

We shall see if during the economic crisis in Eastern Europe the Great Government or the Liberal and “Small” one has been the most successful the model.

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