A recent book by federal housing official Emanuel S. Savas on how to reduce the cost of government was proofread and partially typed by employes at the Department of Housing and Urban Development on government time, according to several officials involved.

Savas, assistant HUD secretary for policy development and research, wrote the book, "Privatizing the Public Sector--How to Shrink Government," for a nonprofit foundation, which said it has sold about 20,000 copies and is paying Savas 8 to 10 percent in royalties.

A former assistant to Savas, Joseph Esposito, directed two professional staff members in HUD's research division to proofread Savas' manuscript in the summer of 1981, according to HUD officials.

The GS-12 staff members, who were earning about $29,000 a year, each spent about five days over two weeks reading the manuscript twice and correcting spelling and grammatical errors, according to department sources, who said other work had to be put aside during this period.

After the manuscript was corrected, two HUD secretaries were asked to type the changes during working hours.

In an interview yesterday, Savas acknowledged that the employes had worked on his manuscript, but maintained that he had not known this before inquiring yesterday. "This is the first I've heard about it," he said.

Savas said he had asked Esposito, a political appointee, "if he would do the final proofing on his own time. After making inquiries today, I discovered to my dismay that Joe, instead of doing it himself, had asked two or three people in my office to do the proofreading and corrective typing.

"I know the boundary line between government and private activity. This is clearly not a proper activity for government officials. If I had known, this is the kind of thing I would have paid for."

Acknowledging that one secretary had spent 20 to 24 hours on the typing, Savas said he would reimburse HUD for all the employes' work.

Esposito, who now works for the Agency for International Development, was traveling in Sri Lanka yesterday, and efforts to reach him were unsuccessful.

Savas' travel is under examination by White House counsel Fred F. Fielding. Savas charged the government $14,000 in travel costs last year, including five trips to Europe and 20 trips to New York, in which he stayed at his home in Tenafly, N.J., after conducting official business. Savas said these were legitimate business trips, on which he saved money by staying with his family instead of in New York hotels.

Savas, a former professor at Columbia University, argued in his book that government has grown too large because of "a demand for more government services by recipients of the services." Most government bureaucrats, Savas wrote, "will go to work at once to enlarge their budgets, do less work, hire still more workers, obtain better-than-average raises and vote for more spending programs . . . . "

He argued that services ranging from public education to towing cars should be contracted to private organizations.

Some department officials said it appeared Savas knew that HUD employes were working on his book, although they never spoke with him directly.

When asked, one of the HUD staff members, Ellen Elow-Mintz, said only that she was asked to correct the Savas book. "We were given the manuscript to read and told to proofread it," she said.

A former HUD staff member who also worked on the proofreading, Meg Smith, did not dispute these accounts, but declined comment.

Their HUD supervisor, Alan Siegel, said the two women were detailed to do special work for Savas and that he "had heard talk" that it included work on the manuscript.

"Because you're doing it for the assistant secretary," a HUD source said, "you don't have the right to say no." A GS-9 secretary at HUD said she was asked to type a long manuscript for Savas, but did not know it was a personal book.

Savas wrote the book under contract with the Manhattan Institute for Policy Research, a nonprofit public policy group. Bill Hammett, the institute president, said Savas was given a $6,000 research grant before he joined HUD, and is being paid a "standard royalty fee" of 10 percent of the proceeds for the $15 hardcover version and 8 percent for the $8.95 paperback.

Hammett said the book, published by Chatham House Publishers of New Jersey, is in its second printing and has sold well in college bookstores and among political professionals. "Little did we know at the time he was going to become a Reagan administration guy," Hammett said. "It hasn't hurt the sales."