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In this article we have investigated the factors affecting productivity and efficiency in Iran's economy ; but the main emphasize has been on the government expenditures and its relation with the indices of productivity and efficiency . The relation between government size and economic performance and growth has been the popular subject for investigation for many economists.
Beside the government expenditures, we have addressed other variables such as human capital , wages , foreign trade and income inequalities . To see the effect of government size on productivity and efficiency we have used government expenditures. The results show that the increase in productivity and efficiency could be achieved via ,a) increase in real wages, b) stabilization of oil revenue, and c) restricting government's current expenditures to the traditional duties of the states.
JEL Clarification: H21, HS, O47