A 2011 working paper by the Sweden-based Research Institute of Industrial Economics, “Government Size and Growth: A Survey and Interpretation of the Evidence” (PDF), analyzed 13 previous studies to better understand their contradictory results by accounting for their varying contexts and definitions of government size.
“The most recent studies find a significant negative correlation: An increase in government size by 10 percentage points is associated with a 0.5 to 1 percent lower annual growth rate.”
The researchers conclude that these “results do not imply that government must shrink for growth to increase. There is potential for increasing growth by restructuring taxes and expenditures so that the negative effects on growth for a given government size are minimized.”
There is no causal relationship but I find it interesting that the Swedish researchers had to try so hard to try and prove the economy is too complex for a simple answer, that social trust, or other factors are crucial, and they are at pains to point out that there is no clear policy implications following their study. How about, well, we know what does not work? Big government and failed social welfare policies?
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