Ajay Chhibber, George Washington University
Abstract: What determines the optimal scope of government intervention at various stages of economic development? This paper develops and empirically explores the Chhibber Curve, a framework that conceptualizes the relationship between the scope of state intervention and government effectiveness as an inverted U-shaped relationship, conditional on state capability. It argues that while expanding the scope of government can initially enhance effectiveness, intervention beyond the administrative and institutional capacity of the state can undermine policy implementation, generate inefficiencies, and weaken governance outcomes. The framework is operationalized using an inverted measure of government scope derived primarily from the Fraser Institute's Economic Freedom of the World indicators and the World Bank's Government Effectiveness Index. Quadratic relationships are estimated separately for high-income OECD, middle-income and low-income country groups, with further disaggregation of middle-income economies. The results suggest that the optimal scope of government varies systematically with development and institutional capability: advanced economies can sustain a broader range of state activities at higher levels of effectiveness, while lower-income economies face more constrained intervention frontiers. The paper identifies two complementary pathways for improving state effectiveness: rationalizing government scope where institutional capacity is overstretched and strengthening administrative capability where there is potential for effective expansion. Country illustrations demonstrate how these pathways differ across development contexts. The central implication is that effective governance depends not on the size of the state per se, but on the alignment of its responsibilities with its institutional and administrative capabilities.
Key words: State effectiveness, State capability, Government scope, Institutional capacity, Governance, Economic development, Public sector reform
JEL codes: H11, H50, O10, O20, O43