Government Size and Economic Growth

Standing in line marking time
Waiting for the welfare dime
'Cause they can't buy a job
--Bruce Hornsby and the Range

Interesting meta study (i.e., study of other studies) on the relationship between government size and economic growth. In their review of both cross sectional and panel studies, the authors conclude that there is close to a consensus that a negative relationship exists between government size and economic growth in developed countries.

The researchers also considered the oft cited anomaly of Sweden and other Scandinavian countries, where these nations seem to prosper despite high taxes. Upon reviewing the data, the authors suggest several explanations. One is that these countries offset the inherent drag of high tax policies with free market policies elsewhere--something these pages have previously considered.

Another explanation is that background factors like 'social' trust,' or the extent to which a culture believes that other people can be trusted, leads people to tolerate redistribution of wealth by government. The authors suggest some empirical support for a positive interaction when both of these factors are present to high degrees.

One explanation not suggested by the authors is trend toward/away from historical market position. For many decades Sweden and neighboring countries operated highly socialistic systems, leading many to collapse under their own weight in the 1990s. Since then free market 'reforms' have been moving growth in positive directions. Essentially, these countries have been experiencing growth from a near death experience. As momentum from the removal of other interventionary barriers stalls, then high taxes and the welfare programs they fund become the binding constraint to growth.