European Journal of Social Sciences – Volume 9, Number 2 (2009) 300 Size of Government Spending and Human Capital Inequality: Evidence from Cross Sectional and Panel Data Analysis Muhammad Jehangir Khan Research Economist, Pakistan Institute of Development Economics (PIDE) Islamabad Pakistan E-mail: mjehangirkhan@yahoo.co.uk Tel: +92-346-80066362; Fax: +92-51-9110886 Asif Javid Assistant Professor, Mirpur University of Science & Technology (AJK) E-mail: asif@sukhi.org Usman Ahmed Staff Economist, Pakistan Institute of Development Economics (PIDE)Islamabad Pakistan E-mail: rohanahmed2001@yahoo.com Shujaat Farooq PhD Student, Pakistan Institute of Development Economics (PIDE) Islamabad Pakistan E-mail: shjt_farooq@yahoo.com Tel: +92-332-8306825; Fax: +92-51-9110886 Abstract This study examines the Meltzer and Richard’s model regarding the role of income inequality in determining the size of government spending which argue that a wider income distribution leads to larger size of state. Our research incorporates alternative inequality measures to test the hypothesis using cross sectional as well as panel data. The panel estimation was undertaken at the level of whole sample. Inequality measures constructed from human capital data set stood consistent at the level of cross section and panel estimation as compared to inequality measures from inequality data set. Control variables also showed consistency with the inclusion of inequality measures from human capital data set. It is also interesting to note that ratio of bottom to top human capital quintiles gives robust and significant coefficient both at the level of cross section and panel estimation. Furthermore our graphical analysis portrays consistent relationship between size of government spending and inequality measures computed from human capital data set as compared to from income inequality data set. Keywords: Government Spending, Human Capital, Inequality,