The Columbia Journal
P.O. Box 2633 MPO,
Vancouver, British Columbia,
Canada V6B 3W8
Does size matter? Study challenges belief that big
government hurts economic growth
CPP News Service
Would cutting taxes even further boost Canada's economic performance?
Would introducing a new social program like early childhood education
and care hurt Canada's productivity? A new report from the Canadian
Centre for Policy Alternatives reviews the evidence, finding no
relationship between how big a government is and a country's economic
"While most economists intuitively think that higher taxes should
undermine economic performance, the evidence does not support such a
view," said economist Marc Lee, author of Size of government and
economic performance: What does the evidence say?
"The enemies of "big government" do so on ideological grounds, often
backed by wealthy individuals who would stand to gain a lot by
shrinking government. Economically, the key questions seem to be not
how much tax is taken as a percent of GDP, but what tax mix is used,
and what the money is spent on."
Lee finds that there is no basic correlation between indicators of
economic performance (such as levels of GDP or GDP growth rates) and
measures of government size (such as tax revenues as a share of GDP). A
number of countries with the same income per person as Canada have
larger government sectors, and some have smaller governments.
More detailed statistical tests uphold the result. There have been
scores of studies on the determinants of economic growth. Combined,
they do not lead to clear, unambiguous conclusions, much less a
consensus about the role of government size on economic growth.
Lee notes that if "big government" led to weaker economic performance,
countries like Norway, Sweden and Denmark, which have much larger
governments than Canada, should all be economic basket cases. But this
is not the case. These countries have among the highest productivity
and standards of living in the world.
Lee concludes that there is no economic barrier to the expansion of
public services in Canada. In fact, economic studies suggest programs
like early childhood education and care would have positive economic
"What is refreshing about this research is that it reinforces the idea
that public policy is about making choices," says Lee. "We can choose
to engage in good social policy without fear that the economic sky will
come falling down on us."