Speaking lore-wise, Baldur's Gate doesn't allow anything larger than a peacock. However, people often underestimate how large a peacock is.
Average Height of a Peacock: 36-48"
Average Length of a Peacock: 39-45" (Longer if you add the train)
Average Height of a German Shepherd: 26-31"
Average Length of a German Shepherd: 36-42"
So, going purely by lore, a German Shepherd (which is the dog most have as companions/pets) would be allowed in (granted, the dog would weigh more. But in cubic space, it would be smaller). I had to look up the lore almost a year ago when the subject came up and people were arguing about dogs being allowed in.
But Ghost does make a good point. The pet merchant sells dogs in the city. If you couldn't have dogs in the city, then he couldn't sell them in the city.
For the druids/rangers of the Enclave, they have a rule amongst themselves that they are not allowed to bring our companions into cities unless they are what most would consider to be "tamed" animals. (The Green Enclave doesn't see any of their animals as pets. They see them as friends. So they don't consider any of them to be "tamed", but rather "taught".)
In one discord, another person asked (tongue in cheek), "Are the hitching posts around town for the peacocks?"
