"Slimmer" governments do better

An interesting new paper, written by economist Keith Marsden and published by the Centre for Policy Studies, presents further evidence of how smaller governments perform better on a range of measures than do larger governments.


The paper shows how countries with low taxes and spending relative to GDP enjoy faster economic and employment growth, lower debt and higher spending growth on public services (as opposed to income transfers) but do not suffer from higher inequality or lower tertiary education rates than countries with higher tax and spending ratios.




Mr Marsden concludes:

These overall findings suggest that the analysis and prescriptions of the early supply-siders were correct. Of course, tax rates and levels, and the size and nature of government interventions, are not the only factors affecting a country’s economic performance. But this evidence rejects the widely-held view that lower taxes inevitably result in cuts in public services, or at best their slower growth, and widening income inequalities.

Although the turmoil in financial markets is preoccupying policy makers at present, they should not lose sight of the stimulus that tax cuts and the pruning of inefficient government programmes could give to sluggish economies. The need to realign some governmental priorities is also revealed.

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