World Bank Report: Economic Growth Is Slower As Government Gets Bigger
“It’s beginning to look like the entire world has figured out that there’s an inverse relationship between big government and economic performance,” writes Dan Mitchell at Cato referring to a number of new studies from a number of sources. The latest report to illustrate that relationship comes from the World Bank, hardly a right-wing group, which found that bigger government (higher levels of taxation and larger bureaucratic regimes) slow economic growth:
An excerpt from the report:
There are good reasons to suspect that big government is bad for growth. Taxation is perhaps the most obvious (Bergh and Henrekson 2010). Governments have to tax the private sector in order to spend, but taxes distort the allocation of resources in the economy. Producers and consumers change their behavior to reduce their tax payments. Hence certain activities that would have taken place without taxes, do not. Workers may work fewer hours, moderate their career plans, or show less interest in acquiring new skills. Enterprises may scale down production, reduce investments, or turn down opportunities to innovate. …Over time, big governments can also create sclerotic bureaucracies that crowd out private sector employment and lead to a dependency on public transfers and public wages. The larger the group of people reliant on public wages or benefits, the stronger the political demand for public programs and the higher the excess burden of taxes. Slowing the economy, such a trend could increase the share of the population relying on government transfers, leading to a vicious cycle (Alesina and Wacziarg 1998). Large public administrations can also give rise to organized interest groups keener on exploiting their powers for their own benefit rather than facilitating a prosperous private sector (Olson 1982).
In other words, big government breeds government dependency and rent-seeking from special interest groups. Sound familiar? We see this in America right now. Government dependency is at all-time highs, and growing, and rent-seeking in Washington has become an industry unto itself.
What’s more, the report’s authors found a correlation between bigger government and slower economic growth:
What this means is that bigger government does not get us a healthier economy. More taxing and more spending will only suppress economic growth.
We need less government, not more.Tags: big government, Economy, jobs