THE SIZE OF PUBLIC SECTOR IN BHUTAN - IS IT INCREASING OR DECREASING?I. IntroductionBhutan launched a vigilant policy of modernization in the mid-1960s, but its economy remains primarily based on agriculture. Bhutan's economy still depends on agriculture and forestry, which provide 80% of the population's livelihood and represent around 40% of GDP. Bhutan is one of the least developed countries in the world and is also considered one of the peaceful nations. The public and private sectors play an important role in the economic development of Bhutan. The public sector is the main sector of development of an economy and the composition of the public sector varies from country to country. The most public sectors could be education and healthcare, public roads, police, military and public transport, etc. The Royal Government of Bhutan has prioritized the development of the private sector as it is considered the engine of economic growth. The sectors of the country have helped in many areas like transportation, education, health for social benefits, private sector in creating jobs and increasing income, which indirectly reduces poverty in a country . The government has an essential role to play in ensuring the well-being of its citizens. The public sector in Bhutan is growing significantly with ongoing development activities and with the increase in population, public expenditure serves an important function in pursuing economic growth and ensuring that the gains are widely distributed to promote the increase in the standard of living of the population. Public spending in some areas is more likely to contribute to growth and a wider distribution of benefits than spending in others.II. Literature...... middle of paper ......ping Country. Policy Research Working Paper. Bhutan, D. (2009). Analysis of public environmental expenditures of the Rolay government of Bhutan. UNDP.Chobanov, D. (2009). What is the optimal size of government? Institute of Marketing Economics, BulgariaEspinoza, R. (2012). Public spending, subsidies and economic efficiency in the GCC. OxCarre External Research Associate. Dewan, S. & Ettlinger, M. (2009). Comparison of public spending and priorities in OECD countries. Center for the American Process. Fan, S. and Rao, N (2003). Public spending in developing countries: trends, determination and impact. Environment and Production Technology Division, 5-7.Grossman, Philip J., (1990). “Government and Growth: Cross-Sectional Evidence,” Public Choice Vol.65: 217-227. Retrieved April 19, 2014 from website: http://www.compareallcountries.com/compare-countries/