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Recent years have been characterized by a lively debate on the economic role that governments should play. What should govern-ments do? How big should be the share of public spending in the national economy? Should governments engage in direct production activities? These questions have been asked with increasing frequency in many countries. However, the debate has been particularly heated in the so-called" welfare states"(especially European), in the economies in transition, and in some developing countries.

In the welfare states the main concerns have been the fiscal deficit, the high and rising level of public debt, and the apparent disincentive effects created by a large public sector (see Organization for Economic Cooperation and Development, 1985). In the economies in transition, the main preoccupation has been the establishment of a realistic role for the pub-lic sector in countries where the …