Government serves many useful functions, including some economic ones. Where government did not exist, anarchy reigned and little wealth accumulated by productive economic activity. The optimal size of government is a problem that has attracted the attention of researchers for decades. Interests on conceptual relationship between economic growth and government size have been initiated since the beginning of 19th century. Government expenditures include spending on consumer and investment goods by all levels of government. There are many approaches to estimate the optimal size of government, but some of them define the relation between government size and economic growth. Each approach has advantages and disadvantages. The size of government expenditures relates to national output in Iran. We follow the methodology suggested by Barro(1990) and Karras (1996,1997) and examine the marginal productivity of government services are optimally provided when the marginal product of government is One. Barro (1990) derives by endogenous growth model to analyze the role of government. This rule is true under a variety of conditions. Karras derives conditions for testing the “Barro rule”, as well as some related hypotheses, and proceeds with testing using large number of data from many countries. He finds that government services are significantly productive. over productive in Africa, under productive in Asia, and optimally provided elsewhere. The present paper investigates to what degree Iran maintain a government size to optimize the economic growth. The paper empirically investigates the government expenditures pattern in Iran following Karras’ method applying the regression analysis over a yearly time series data of 1967 to 2007. It differs from previous studies regarding to Iran using a new method which not be applied to analyze the size of government. The data is collected mainly from the International Financial Statistics Yearbook published by the International Monetary Fund. For our measure of output, total capital stock, and government expenditures, we use GDP, capital stock, and general final government expenditures. The estimated results show that government services are productive in Iran, but the size of government is too large to be optimal. These results are similar to those obtained by Karras (1996, 1997) for a set of non-transition European countries. The optimal government size is estimated to be 22.6 percent of GDP for Iranian economy. The estimated government size for Iran is very similar to other Irania studies, though it is lower than the finding for current size of government. Additionally, government should manage the allocation of government expenditures between different economic activities and sectors in Iran